What drives the market for exchange-traded notes?

David Rakowski () and Sara Shirley

Journal of Banking & Finance, 2020, vol. 111, issue C

Abstract: Exchange-traded notes (ETNs) are a relatively new form of security design that appear similar to exchange-traded funds (ETFs), but with no underlying portfolio holdings. We identify those characteristics of ETNs that are distinct from ETFs, and we test which ETN characteristics are most associated with interest from investors. We find that some ETNs have return patterns that are not spanned by ETFs, while other ETNs employ different strategies to attract investors. We show that the market activity for ETNs is associated with the distinctiveness of ETN returns, improvements in tracking errors, access to leverage, and the extent of risk transformation that ETNs allow.

Keywords: Exchange-traded notes (ETNs); Exchange-traded funds (ETFs); Financial innovation; Mean-variance spanning; Security design; Exchange-traded products (ETPs); Tracking error (search for similar items in EconPapers)
JEL-codes: G10 G19 G23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:111:y:2020:i:c:s0378426619302766

DOI: 10.1016/j.jbankfin.2019.105702

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