Tail-Risk Hedging, Dividend Chasing, and Investment Constraints: The Use of Exchange-Traded Notes by Mutual Funds
Journal of Empirical Finance, 44, pp.91-107.
Posted: 7 Jun 2016 Last revised: 30 Mar 2018
Date Written: August 29, 2017
Our study examines mutual fund demand for a newly designed security, exchange-traded notes (ETNs). We find strong evidence that mutual fund long positions in ETNs significantly underperform and that the motivations to hold ETNs lie outside of maximizing returns. Mutual funds hold ETNs to hedge tail risk and to gain access to higher dividend yields. Mutual funds have a strong preference for derivative-like ETNs although this preference is unrelated to contractual constraints. Finally, we show that skilled timing of ETN investments is limited to the short-sales market.
Keywords: Exchange Traded Notes, Mutual Funds, Financial Innovation, Portfolio Management
JEL Classification: G11, G23, G20
Suggested Citation: Suggested Citation