Retail Investing in Passive Exchange Traded Funds

Catherine D'Hondt, Younes Elhichou Elmaya and Mikael Petitjean
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Catherine D'Hondt: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2020013, LIDAM Discussion Papers LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: Using a large set of trading accounts, we study the determinants of retail investing in passive Exchange Traded Funds (P-ETFs). Controlling for investor characteristics related to their risk-return profile, trading activity, and socio-demographics, we show that the probability and magnitude of P-ETF investing by retail investors can be explained by financial knowledge, financial experience, and behavioral biases such as overconfidence and local bias. We also show that the more active P-ETF users hold a lower number of stocks and modify the composition of their stock portfolio less extensively, pointing to a substitution effect between stocks and P-ETFs.

Keywords: Behavioral biases; ETFs; Financial literacy; Passive investing; Retail investors (search for similar items in EconPapers)
JEL-codes: G11 G40 G53 (search for similar items in EconPapers)
Pages: 33
Date: 2020-01-21
New Economics Papers: this item is included in nep-fle
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlf:2020013

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