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Same same but different: The risk profile of corporate bond ETFs
Johannes Dinger1, Marcel Müller1, Marliese Uhrig-Homburg1, Aleksandra Rzeźnik2
1Karlsruhe Institute of Technology, Germany; 2Schulich School of Business York University, Canada
Discussant: Matthias Muck (Universität Bamberg)
We show that, while corporate bond ETFs systematically exhibit lower liquidity risk than the bonds they hold, they also face heightened intermediary risk. This effect is more pronounced for high-yield ETFs, for those with less liquid portfolios, and for funds reliant on weaker Authorized Participants. A stylized model reveals how partial segmentation between ETF and bond markets drives these diverging exposures. Overall, investors of corporate bond ETFs effectively trade reduced liquidity risk for increased intermediary risk, highlighting a fundamental trade-off embedded in the ETF structure.
2:30pm - 3:00pm
ESG favoritism in mutual fund families
Anna Zsofia Csiky1, Rainer Jankowitsch1,2, Alexander Pasler1, Marti G. Subrahmanyam3,4
1WU (Vienna University of Economics and Business), Austria; 2Vienna Graduate School of Finance; 3NYU Stern; 4NYU Shanghai
Discussant: Johannes Dinger (Karlsruhe Institute of Technology)
We investigate whether mutual fund families favor their ESG funds at the expense of their non-ESG siblings. We find that the net-of-style return spread of ESG compared to non-ESG funds within the fund family is significantly greater than the gap with non-ESG matches outside the family. The difference is around 2% per year, on average, indicating sizable cross-fund subsidization that is mainly used to avoid underperformance of ESG funds. We link this difference in performance to various fund and family characteristics and relate the observed effects to measures of environmental awareness and fund flows. Additionally, we
investigate potential mechanisms of ESG favoritism.
3:00pm - 3:30pm
Unmasking global investors: An examination of the shifting dynamics in sovereign bond trading
Discussant: Alexander Pasler (WU (Vienna University of Economics and Business))
This paper explores the trading dynamics of key participants in the German government bond market from 2005 to 2024, with a particular focus on hedge funds. Using a unique data set of the German Finance Agency we analyze trading flows across investor groups. The dataset allows us to decompose the group of foreign investors, who hold over 50% of German sovereign bonds, and identifies hedge funds as a pivotal group. Hedge funds have increasingly acted as quasi-market makers, absorbing newly issued bonds and providing liquidity. They assumed this role when quantitative easing started in 2015 and continued it during quantitative tightening, starting in 2022.
