Claims that exchange traded funds are responsible for elevated market volatility in recent years are unfounded, says the Investment Company Institute, the trade association for mutual funds.
“Commentators who overlook the effects of these macro developments on recent market volatility in their rush to focus on ETFs fail to meet the test of reason,” writes ICI senior Economist Rochelle Antoniewicz in a paper.
“In the past year, many commentators have charged that exchange traded funds are responsible for driving stock market volatility to unprecedented extremes. That charge, however, breaks down under an examination of the data,” Antoniewicz says. [Market Volatility: What Do ETFs Have to Do With It?]
The economist says ICI’s analysis shows:
- Recent levels of volatility aren’t unprecedented.
- Episodes of heightened volatility predate the rapid growth of ETFs.
- Volatility is a global phenomenon and occurs in markets where ETFs play a much smaller role than they do in the U.S.
- Macroeconomic events—not particular market instruments—offer far more plausible explanations for episodes of volatility, including those experienced in the past three years.