Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management
University of Mannheim - Area Banking, Finance, and Insurance
Leibniz Universität Hannover
Goethe University Frankfurt - Faculty of Economics and Business Administration
November 22, 2014
Kelley School of Business Research Paper No. 2014-46
Do ETFs, one of the most popular investment products in recent times, benefit individual investors? Using data from one of the largest brokerages in Germany, we find that individual investors do not improve their portfolio performance, even before transactions costs, by using these passive products. Using counterfactual analysis, we show that this occurs mostly from buying ETFs at “wrong” points in time rather than choosing “wrong” ETFs. Therefore, adopting a buy-and-hold strategy is more important than selecting better ETFs for individual investors.
Number of Pages in PDF File: 55
Keywords: household finance, retail investors, ETFs, passive investing, active investing, security selection, market timing
JEL Classification: D14, G11, G28
Date posted: March 15, 2012 ; Last revised: December 1, 2014
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