Nathan Converse, Eduardo Levy Yeyati, Tomás Williams, 20 March 2018

The share of fund assets held in exchange-traded funds has risen from 3.5% in 2005 to 14% in 2017, and to 20% for funds in emerging market assets. This column uses reported investor flows to argue that this is related to increased exposure of aggregate portfolio equity capital inflows to global risk. On this evidence, exchange-traded fund flows amplify the global financial cycle.

Toby Nangle, Anthony Yates, 12 October 2017

Among the many in quantitative easing programmes that central banks have engaged in to combat low inflation since the Global Crisis, the Bank of Japan’s programme stands out for its size and scope. This column explores whether the Bank’s programme of purchasing Japanese equities through exchange-traded funds has succeeded in its aim of lowering risk premia of asset prices. The Bank has timed the execution of the programme to coincide with episodes of market weakness, possibly with the aim of dampening price volatility. Over the course of the programme, however, Japanese stocks de-rated against global stocks.

Stephen Cecchetti, Kim Schoenholtz, 15 November 2016

A growing class of mutual funds – those that hold mostly illiquid assets – appear to be a potential source of systemic risk. This column discusses why, and argues that converting open-end mutual funds into exchange-traded funds could mitigate the problem. When markets are liquid, exchange-traded funds operate like open-end mutual funds; but should markets become illiquid, exchange-traded funds then operate like closed-end funds and face no run risk.

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