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The Unexpected Activeness of Passive Investors: A World-Wide Analysis of ETFs

Si Cheng, Massimo Massa and Hong Zhang

No 11988, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The global ETF industry provides more complicated investment vehicles than just low-cost index trackers. Instead, we find that the real investments of ETFs deviates from their benchmarks to leverage informational advantages (which leads to a surprising stock-selection ability), and to help affiliated OEFs through cross-trading. These effects are more prevalent in ETFs domiciled in Europe. Market awareness of such additional risk is reflected in ETF outflows. These results have important normative implications for consumer protection and financial stability

Keywords: banks; Distress; ETFs; shadow banking; Subsidization (search for similar items in EconPapers)
JEL-codes: G20 (search for similar items in EconPapers)
Date: 2017-04
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