The Unexpected Activeness of Passive Investors: A World-Wide Analysis of ETFs

53 Pages Posted: 25 Apr 2017

See all articles by Si Cheng

Si Cheng

Chinese University of Hong Kong - Department of Finance

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 2017

Abstract

The global ETF industry provides more complicated investment vehicles than just low-cost index trackers. Instead, we find that the real investments of ETFs deviates from their benchmarks to leverage informational advantages (which leads to a surprising stock-selection ability), and to help affiliated OEFs through cross-trading. These effects are more prevalent in ETFs domiciled in Europe. Market awareness of such additional risk is reflected in ETF outflows. These results have important normative implications for consumer protection and financial stability.

Keywords: banks, Distress, ETFs, shadow banking, Subsidization

JEL Classification: G20

Suggested Citation

Cheng, Si and Massa, Massimo and Zhang, Hong, The Unexpected Activeness of Passive Investors: A World-Wide Analysis of ETFs (April 2017). CEPR Discussion Paper No. DP11988. Available at SSRN: https://ssrn.com/abstract=2957527

Si Cheng (Contact Author)

Chinese University of Hong Kong - Department of Finance ( email )

12/F, Cheng Yu Tung Building
No.12, Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/cheng-si/

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

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