Exchange-Traded Funds on European Markets: Has Critical Mass been Reached? Implications for Financial Systems.

Exchange-traded funds (ETFs) are one of the most rapidly expanding categories of financial products in Europe. One of the key yet still unanswered questions is whether European ETF markets have reached the size at which they could affect the financial systems. In our study, we examine 13 European countries during the period 2004-2017 in order to trace whether the share of ETFs in the total assets of investment funds has reached the 'critical' level that makes possible their further growth and can be associated with an influence on the financial system. We use a novel methodological approach that identifies the 'critical mass' along diffusion trajectories. Our results show that, in 10 countries, the share of ETFs in assets of investment funds increased. Still, in most countries, the share of ETFs did not exceed 1%. Estimates of the diffusion models indicate that the process of growing shares of ETFs was most dynamic and relatively most stable in Switzerland and United Kingdom. Results of the critical mass analysis imply that its achievement may be forecasted exclusively in these two cases. However, even in such cases there is no substantial evidence for a possible significant influence of ETFs on the local financial systems.

Investigating the role of smart technologies, financial, and environmental innovations in tackling the ecological sustainability: a global pathway toward low carbon energy transition.

Since the beginning of the twenty-first century, the rapid development of modern technologies has brought unprecedented social prosperity to mankind as technologies penetrate every sector of the economy. These technologies have given a new dimension to the energy sector. The key purpose of this study is to investigate the crucial impact of technological revolutions, namely, smart grids, smart devices, financial innovations, and environmental innovations, on greenhouse gas emissions (GHGs). To this end, the study utilized data from European, Asian, Middle Eastern, and African countries and employed first- and second-generation methods, such as DOLS, FMOLS, and CS-ARDL models. The research shows that smart grids are the only factor in reducing GHGs, regardless of geographic division. Hence, linking smart grid resources to climate change goals requires short-term deployment strategies with a clear long-term vision and the fundamental goal of transforming the power structure into a net zero-emission system. The study also demonstrates that the emergence of ICT in electricity consumption has not yet reached a level that can promote environmental excellence. The study documented the critical role of financial innovation and environmental innovation in addressing environmental degradation.

COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations.

This study examines the hedging effectiveness of financial innovations against crude oil investment risks, both before and during the COVID-19 pandemic. We focus on the non-energy exchange traded funds (ETFs) as proxies for financial innovations given the potential positive correlation between energy variants and crude oil proxies. We employ a multivariate volatility modeling framework that accounts for important statistical features of the non-energy ETFs and oil price series in the computation of optimal weights and optimal hedging ratios. Results show evidence of hedging effectiveness for the financial innovations against oil market risks, with higher hedging performance observed during the pandemic. Overall, we show that sectoral financial innovations provide resilient investment options. Therefore, we propose that including the ETFs in an investment portfolio containing oil could improve risk-adjusted returns, especially in similar financial crisis as witnessed during the pandemic. In essence, our results are useful for investors in the global oil market seeking to maximize risk-adjusted returns when making investment decisions. Moreover, by exploring the role of structural breaks in the multivariate volatility framework, our attempts at establishing robustness for the results reveal that ignoring the same may lead to wrong conclusions about the hedging effectiveness.