Competition for Attention in the ETF Space
Francesco Franzoni,
Itzhak Ben-David,
Byungwook Kim and
Rabih Moussawi
No 15762, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
Exchange-traded funds (ETFs) are the most prominent financial innovation of the last three decades. Early ETFs offered broad-based portfolios at low cost. As competition became more intense, issuers started offering specialized ETFs that track niche portfolios and charge high fees. Specialized ETFs hold stocks with salient characteristics---high past performance, media exposure, and sentiment---that are appealing to retail and sentiment-driven investors. After their launch, these products perform poorly as the hype around them vanishes, delivering negative risk-adjusted returns. Overall, financial innovation in the ETF space follows two paths: broad-based products that cater to cost-conscious investors and expensive specialized ETFs that compete for the attention of unsophisticated investors.
Keywords: Etfs; Financial innovation; Competition for attention (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2021-02
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Citations: View citations in EconPapers (5)
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Working Paper: Competition for Attention in the ETF Space (2021) ![Downloads](/downloads_econpapers.gif)
Working Paper: Competition for Attention in the ETF Space (2021) ![Downloads](/downloads_econpapers.gif)
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