Conventional Mutual Index Funds Versus Exchange Traded Funds

32 Pages Posted: 20 Feb 2009 Last revised: 7 Jan 2011

Date Written: February 20, 2009


This paper examines implications of substitutability of two similar investment vehicles: conventional index mutual funds and exchange traded funds (ETFs). It seeks to explain the coexistence of these vehicle types, which offer a claim on the same underlying index return process, but have distinct organizational structures. This study compares aggregate flows into conventional open-end index funds to those into ETFs for various underlying indexes. The study shows that conventional funds and ETFs are substitutes, but not perfect substitutes. Their coexistence can be explained by a clientele effect that segregates the two vehicles into different market niches.

Keywords: ETF, Index Fund, Substitute, Clientele

JEL Classification: G11, G23

Suggested Citation

Agapova, Anna, Conventional Mutual Index Funds Versus Exchange Traded Funds (February 20, 2009). Journal of Financial Markets, Vol. 14, No. 2, pp. 323-343, May 2011 , Available at SSRN:

Anna Agapova (Contact Author)

Florida Atlantic University ( email )

Finance Department
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Boca Raton, FL 33431
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561-297-3493 (Phone)

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