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
July 11, 2016
Forthcoming in the Review of Finance
Using data from a large German brokerage, we find that individuals investing in passive exchange-traded funds (ETFs) do not improve their portfolio performance, even before transaction costs. Further analysis suggests that this is because of poor ETF timing as well as poor ETF selection (relative to the choice of low-cost, well-diversified ETFs). An exploration of investor heterogeneity shows that though investors who trade more have worse ETF timing, no groups of investors benefit by using ETFs, and no groups will lose by investing in low-cost, well-diversified ETFs.
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: July 22, 2016
© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.
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