Competition for Attention in the ETF Space

Itzhak Ben-David, Francesco A. Franzoni, Byungwook Kim and Rabih Moussawi
Additional contact information
Francesco A. Franzoni: USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)
Byungwook Kim: Ohio State University (OSU) - Department of Finance
Rabih Moussawi: Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

No 21-03, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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: exchange-traded funds; ETFs; financial innovation; competition; attention; retail investors; trading; securities; mutual funds; financial intermediation; overvaluation (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-01
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Citations: View citations in EconPapers (6)

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