Smart Beta, 'Smarter' Flows

61 Pages Posted: 3 May 2017 Last revised: 18 Oct 2021

See all articles by Jie Cao

Jie Cao

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Jason C. Hsu

Research Affiliates; Rayliant Global Advisors; University of California, Los Angeles - Anderson School of Business

Linjia Song

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Zhanbing Xiao

The University of British Columbia

Xintong Zhan

Department of Finance, School of Management, Fudan University

Date Written: May 24, 2020

Abstract

Using U.S. and global data, we examine the impact of Smart Beta ETFs on active mutual funds. As Smart Beta ETFs become widely available and actively traded, active mutual fund flows become “smarter”, that is they become more sensitive to multi-factor alphas. Our findings demonstrate how product innovation changes investor behavior and the investment ecosystem. Specifically, multi-factor analyses have become more relevant in performance attribution, and closet factor funds have become targets for replacement by low-cost Smart Beta ETFs.

Keywords: Smart beta ETFs; financial innovation; asset pricing models; mutual fund flows; investor behavior

JEL Classification: G11; G23; G15

Suggested Citation

Cao, Jie and Hsu, Jason C. and Hsu, Jason C. and Song, Linjia and Xiao, Zhanbing and Zhan, Xintong, Smart Beta, 'Smarter' Flows (May 24, 2020). Available at SSRN: https://ssrn.com/abstract=2962479 or http://dx.doi.org/10.2139/ssrn.2962479

Jie Cao (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, NT
Hong Kong
(852) 3943 7757 (Phone)
(852) 2603 6586 (Fax)

HOME PAGE: http://sites.google.com/site/jiejaycao

Jason C. Hsu

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Linjia Song

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Zhanbing Xiao

The University of British Columbia ( email )

Vancouver, British Columbia
Canada

HOME PAGE: http://www.zhanbingxiao.com

Xintong Zhan

Department of Finance, School of Management, Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

HOME PAGE: http://sites.google.com/view/xintongzhan

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