Template-Type: ReDIF-Paper 1.0
Author-Name: Karamfil Todorov
Author-X-Name-First: Karamfil
Author-X-Name-Last: Todorov
Title: Passive funds affect prices: evidence from the most ETF-dominated asset classes
Abstract: This paper studies exchange-traded funds’ (ETFs) price impact in the most ETF-dominated asset classes: volatility (VIX) and commodities. I propose a modelindependent approach to replicate the VIX futures contract. This allows me to isolate a non-fundamental component in VIX futures prices that is strongly related to the rebalancing of ETFs. To understand the source of that component, I decompose trading demand from ETFs into three parts: leverage rebalancing, calendar rebalancing, and flow rebalancing. Leverage rebalancing has the largest effects. It
amplifies price changes and exposes ETF counterparties negatively to variance.
Length: 47 pages
Creation-Date: 2021-07
File-URL: https://www.bis.org/publ/work952.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work952.htm
File-Format: text/html
Number: 952
Keywords: ETF, leverage, commoditization, VIX, futures
Classification-JEL: G11, G13, G23
Handle: RePEc:bis:biswps:952