ETF ownership and stock price crash risk: evidence from China

Exchange-traded funds (ETFs) grow rapidly and attract increasing attention from academia and practitioners. Based on data from the Chinese financial market, we investigate whether ETF inflows affect the price crash risk of underlying stocks. Results show that greater ETF ownership leads to higher stock price crash risk in the future. Besides, stocks with greater ETF ownership have significantly smaller Amihud illiquidity and higher turnover, supporting the 'liquidity mechanism'. Our results complement related literature by showing that passive funds can also benefit stock price formation.