ETF Dividend Cycles
Pekka Honkanen (University of Georgia), et al.
February 2023
Exchange-traded funds (ETFs) collect approximately 7% of all U.S. corporate dividends, which they are required to redistribute to investors. How do the funds manage these dividend flows, and does such management have spillover effects on other financial markets? In this paper, we document a new stylized fact of the “ETF dividend cycle:” ETFs gradually invest in money market funds (MMFs) when they accumulate dividend receipts and periodically withdraw from MMFs when they distribute dividends. This cycle creates periodic liquidity shocks to MMFs and, consequently, to the Treasury markets as the affected MMFs liquidate some of their short-term Treasury holdings to satisfy ETFs’ dividend-driven withdrawals. As a result, ETF dividend cycles can explain flows to MMFs and fluctuations in Treasury yields.
Daily Archives: March 10, 2023
Macro Briefing: 10 March 2023
* China’s Xi Jinping secures unprecedented third term as president
* Selling of bank shares spreads as troubles for tech lender SVB deepen
* UK reports stronger-than-expected growth for January GDP
* OPEC is again the main factor influencing global oil supply
* Credit card debt reaches new high, putting consumers at ‘breaking point’
* US jobless claims rise to 2023 high but remain historically low
* US stock market falls to lowest level since late-January:
