Exchange Traded Fund Flows

Abstract

I investigate the flow-return relationship in Exchange Traded Funds (ETFs). A variable for fund flows is defined using the change in shares outstanding, and the correlation and causality between ETF fund flows and returns is investigated at individual and aggregate levels. Significant negative correlation is documented between ETF flows and market returns, in monthly frequency. Investigating the nature of the association, I fail to reject the hypothesis of no-price-pressure on market returns originating from ETF flows. Higher frequency investigation of the relation indicates return chasing behavior in some ETFs, and is inconclusive in others.