Critical Finance Review > Vol 14 > Issue 3

ETF Dividend Cycles Predict Money Market Fund Flows and Treasury Yield Changes

By Pekka Honkanen, University of Georgia, USA, pekka.honkanen@uga.edu | Yapei Zhang, ShanghaiTech University, China, zhangyp3@shanghaitech.edu.cn | Tong Zhou, Southern University of Science and Technology, China, zhout6@sustech.edu.cn

 
Suggested Citation
Pekka Honkanen, Yapei Zhang and Tong Zhou (2025), "ETF Dividend Cycles Predict Money Market Fund Flows and Treasury Yield Changes", Critical Finance Review: Vol. 14: No. 3, pp 425-445. http://dx.doi.org/10.1561/104.00000164

Publication Date: 07 Jul 2025
© 2025 Pekka Honkanen, Yapei Zhang, and Tong Zhou
 
Subjects
 
Keywords
G12G23G24
Exchange-traded fundsMoney market fundsDividendsTreasury marketsSpillover effects
 

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In this article:
1. Introduction 
2. Data and Variable Construction 
3. Stylized Facts of ETF Dividend Cycles 
4. Spillover Price Impacts of ETF Dividend Cycles 
5. Conclusion 
References 

Abstract

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.

DOI:10.1561/104.00000164