Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297929 
Year of Publication: 
2020
Citation: 
[Journal:] Central Bank Review (CBR) [ISSN:] 1303-0701 [Volume:] 20 [Issue:] 4 [Year:] 2020 [Pages:] 205-211
Publisher: 
Elsevier, Amsterdam
Abstract: 
Exchange-Traded Funds (ETFs) have become one of the most popular passive investment instruments since they bring together the advantages of stocks and mutual funds. As passive investors are more risk averse and sensitive to possible adverse market developments, ETF's fund flows can provide distinct information in certain periods in comparison with active funds. This study looks at ETF fund flows in foreign exchange uncertainty by using EGARCH models, together with added control variables. The main results are that the large inflows of ETFs increases exchange rate volatility for contemporaneous and lagged effect models, yet large outflows have a negative and statistically significant effect on the exchange rate volatility in lagged variance equation. These findings suggest an asymmetric behavior as outflows of ETFs are followed by an exchange rate depreciation with less exchange rate FX uncertainty, while significantly large inflows of ETFs lead to higher FX uncertainty.
Subjects: 
EGARCH models
Exchange-traded funds
FX volatility
JEL: 
E44
G12
G32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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