THE DYNAMICS OF SHORT-TERM ETF FLOWS AND RETURNS BEFORE AND DURING COVID-19 PANDEMIC

Abstract

Abstract:

This paper investigates the relationships between flows and returns for Beta ETF WIG20TR  and WIG20 index before and during covid crisis. Four alternative hypotheses are tested, including the price pressure hypothesis, information hypothesis, feedback trading hypothesis, and smoothing hypothesis. A Vector Autoregressive (VAR) model is used to analyze the relationships between each flows and returns. The sample periods were from 7 January 2019 to 31 August 2020, with having 407 observations. Sub-sample during covid crisis is since 12 March 2020 to 31 August 2020. This paper will also shows what is influenced by the hypotheses from the investor's point of view and what it means in practice. ETF can more easily spread risk for investors. The COVID-19 pandemic has resulted in panics as well as the temporary closure of businesses in most economies. The COVID-19 pandemic has brought the most challenging social and economic crisis the world has faced since World War Two.