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Abusing ETFs

Forthcoming in the Review of Finance

55 Pages Posted: 15 Mar 2012 Last revised: 13 Sep 2017

Utpal Bhattacharya

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management

Benjamin Loos

University of Mannheim - Area Banking, Finance, and Insurance

Steffen Meyer

Leibniz Universität Hannover

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Date Written: July 11, 2016

Abstract

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.

Keywords: household finance, retail investors, ETFs, passive investing, active investing, security selection, market timing

JEL Classification: D14, G11, G28

Suggested Citation

Bhattacharya , Utpal and Loos, Benjamin and Meyer, Steffen and Hackethal, Andreas, Abusing ETFs (July 11, 2016). Forthcoming in the Review of Finance. Available at SSRN: https://ssrn.com/abstract=2022442 or http://dx.doi.org/10.2139/ssrn.2022442

Utpal Bhattacharya (Contact Author)

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Benjamin Loos

University of Mannheim - Area Banking, Finance, and Insurance ( email )

L5, 2
Mannheim, 68131
Germany

HOME PAGE: http://weber.bwl.uni-mannheim.de/en/faculty/dr_benjamin_loos/

Steffen Meyer

Leibniz Universität Hannover ( email )

Königsworther Platz 1
Hannover, DE 30167
Germany

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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