Investor heterogeneity and the market for fund benchmarks: Evidence from passive ETFs

Leonard Kostovetsky and Jerold Warner

Journal of Banking & Finance, 2025, vol. 173, issue C

Abstract: The market for passive ETFs and passive ETF benchmarks has exploded. Passive ETF sponsors get index benchmarks mainly from brand name index providers such as S&P and Russell. We show how benchmark and index provider characteristics are relevant for sponsors and different investor types. ETF benchmarks from large index providers attract more capital. Institutional flows exhibit a strong preference for brand name benchmarks, but do-it-yourself retail investor flows do not. ETFs that change benchmarks reduce their tracking error and have 7% higher flows in the subsequent three months, again driven by institutional flows.

Keywords: ETFs; Index providers; Fund flows; Institutional Investors; Retail investors; Tracking error; Benchmarks; Brand name; Generic (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:173:y:2025:i:c:s0378426625000329

DOI: 10.1016/j.jbankfin.2025.107412

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