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FIIE-9: Exchange-Traded Funds and Fund Flows
Asset Prices and Corporate Responses to Bank of Japan ETF Purchases
1National University of Singapore, Singapore; 2Alberta School of Business, University of Alberta; 3National Bureau of Economic Research; 4Asian Bureau of Finance and Economic Research; 5European Corporate Governance Institute
Since 2010, the Bank of Japan (BOJ) has purchased stocks to boost domestic firms’ valuations to increase GDP growth. The stock return elasticity with respect to BOJ purchases relative to the previous month’s market cap is around 2 and increases across longer horizons. Over one quarter, BOJ share purchases worth 1% of assets correspond to an increase of 1% in share valuation and a .27% increase in assets. Consistent with elevated valuations letting firms “cash out,” BOJ share purchases predict equity issuances and fewer stock buybacks. However, less than 9% of increased assets reflect net tangible capital investments, whereas cash and short-term investments account for over 50%. This unconventional monetary stimulus thus boosts share prices but is largely not transmitted into real investment growth.
Swing Pricing and Fragility in Open-end Mutual Funds
1International Monetary Fund; 2Said Business School, University of Oxford; 3Imperial College London
In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing or dual pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using data on open-end corporate bond mutual funds, we show that alternative pricing rules eliminate the first-mover advantage arising from the traditional pricing rule and significantly reduce redemptions that are observed during stress periods. Using unique data available at the end-investor level, we confirm that alternative rules alter investors’ behavior. Fund companies perceive their pricing schemes as a substitute to other means of liquidity risk management.
Phantom of the Opera: ETFs and Shareholder Voting
1University of Virginia, United States of America; 2University of Cambridge; 3Villanova University
Short-selling and liquidity provision in Exchange-Traded Funds create ETF shares with cash flows rights but no associated voting rights. These “phantom shares” trade at ETF market prices, but, because they are not backed by the underlying basket of securities held by the ETF sponsor’s custodian they are not voted by the sponsor, removing any associated voting rights. We introduce a novel measure of phantom shares, and show that in proxy voting of the underlying stocks of the ETF, it is associated with an increase in broker non-votes and a corresponding decrease in both votes for and against. We also find that increases in our measure of phantom shares reflecting a decrease in the total outstanding shares to be voted, is associated with an increase in the vote premium during shareholder meetings with close votes, proxy contests, special meeting items, or if ISS recommended voting against the item.
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Conference: EFA 2019
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