Two-Sided Markets in Asset Management: Exchange-Traded Funds and Securities Lending

46 Pages Posted: 2 Aug 2014 Last revised: 28 Sep 2016

See all articles by Jesse Blocher

Jesse Blocher

Vanderbilt University - Finance

Robert E. Whaley

Vanderbilt University - Finance

Date Written: May 4, 2016

Abstract

Asset management has long been a simple, fee-for-service business. Recently, however, exchange-traded funds (ETFs) have become increasingly engaged in two-sided markets between investors and stock borrowers. We show that ETF fees from lending securities match expense ratios on average and, in some cases, are much higher. We also show that managers tend to slant their holdings toward stocks with higher lending fees. Finally, we test for two-sidedness by showing that the ratio of lending fees to expense ratio drives asset growth. The results should be important to investors, who are no longer the customer buying service but are the product being sold.

Keywords: Exchange Traded Funds, Securities Lending, Two Sided Markets, Index Funds

JEL Classification: G23, G12

Suggested Citation

Blocher, Jesse and Whaley, Robert E., Two-Sided Markets in Asset Management: Exchange-Traded Funds and Securities Lending (May 4, 2016). Vanderbilt Owen Graduate School of Management Research Paper No. 2474904. Available at SSRN: https://ssrn.com/abstract=2474904 or http://dx.doi.org/10.2139/ssrn.2474904

Jesse Blocher (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Robert E. Whaley

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-343-7747 (Phone)
615-376-8879 (Fax)

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