Exchange-Traded Funds, Heterogeneous Agents, and Financial Stability

Title data

Baumann, Michael Heinrich ; Baumann, Michaela ; Herz, Bernhard:
Exchange-Traded Funds, Heterogeneous Agents, and Financial Stability.
In: Indian Journal of Finance and Economics. Vol. 4 (2023) Issue 1 . - pp. 73-120.
ISSN 2582-2217
DOI: https://doi.org/10.47509/IJFE.2023.v04i01.05

Official URL:

Abstract in another language

Exchange Traded Funds (ETFs), esp. index funds, have seen an enormous growth over the recent decades. We investigate the financial market effects of actively traded ETFs in a heterogeneous agent model which is calibrated to historical data. We consider four types of traders, namely fundamentalists and trend followers who either trade ETFs or the underlying individual assets. We find that the complex interactions of investment strategies and the availability of ETFs generate interesting nonlinearities for typical market metrics such as susceptibility for bubbles, asset price volatility, asset price correlations, and mispricing. Thus, the growing popularity of ETFs as an investment vehicle gives rise to considerable regulatory challenges.

Further data

Item Type:	Article in a journal
Refereed:	Yes
Keywords:	Exchange-traded Funds; Financial Stability; Agent-based Model
Subject classification:	JEL codes: C63, D01, G10, G11, G40
Institutions of the University:	Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics > Chair Mathematics V (Applied Mathematics) Faculties > Faculty of Law, Business and Economics > Department of Economics > Former Professors > Chair Economics I - International Economics and Finance - Univ.-Prof. Dr. Bernhard Herz Profile Fields > Advanced Fields > Nonlinear Dynamics Research Institutions > Central research institutes > Bayreuth Research Center for Modeling and Simulation - MODUS
Result of work at the UBT:	Yes
DDC Subjects:	300 Social sciences > 330 Economics 500 Science > 510 Mathematics
Date Deposited:	28 Apr 2025 07:40
Last Modified:	28 Apr 2025 07:40
URI:	https://eref.uni-bayreuth.de/id/eprint/93359