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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
References: Add references at CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Competition for Attention in the ETF Space (2023) Downloads
Working Paper: Competition for Attention in the ETF Space (2021) Downloads
Working Paper: Competition for Attention in the ETF Space (2021) Downloads
Working Paper: Competition for Attention in the ETF Space (2021) Downloads
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