Qiping (Jimmy) Huang, an assistant professor in the Department of Finance, co-authored the paper “Do ETFs Affect ADRs and U.S. Domestic Stocks Differently?” that was presented at the virtual 2020 Cross Country Perspectives in Finance Conference in August.
Assets under management by exchange-traded funds (ETFs) have grown exponentially in the last two decades, from $79 billion in 2000 to $5,268 billion in the first quarter of 2020. Recent research has discovered the impact of ETFs on the stock market, particularly on U.S. public firms. For example, literature finds that higher ETF ownership leads to higher volatility for the underlying U.S. firms, or higher trading costs, or lower informational efficiencies. However, extant literature only focuses on U.S. firms and no paper examines the impact of ETFs on foreign firms listed in the U.S. market.
“We attempt to fill the gap in the literature by studying how ETFs affect foreign firms,” said Huang. “We find that ETFs have the opposite effects on foreign firms by increasing liquidity and improving information efficiency for underlying foreign firms.”
Co-authors of the paper include Chengbo Fu of the University of Northern British Columbia and Hongfei Tang with Seton Hall University.