An Analysis of the Impact of Securities Lending on the Performance of ETFs

Journal of Wealth Management, Volume 17, Number 4, p. 75-84, 2015

https://doi.org/10.3905/jwm.2015.17.4.075

Posted: 20 May 2019

See all articles by Lee M. Dunham

Lee M. Dunham

Creighton University - College of Business Administration

Thuy H. Simpson

University of Nebraska-Lincoln

Date Written: November 1, 2014

Abstract

Securities lending has been a lucrative business for mutual funds and ETFs over the past decade. We examine the impact of securities lending activities on the return performance of U.S. equity ETFs. We find that income from securities lending has surged in recent years and was at extreme levels during the financial crisis years of 2008 and 2009. We document that income from securities lending activities has been used by these ETFs as a means of considerably reducing tracking errors over time. Our findings have important implications for investors who use tracking error to evaluate the performance of ETFs.

Keywords: Securities Lending, ETFs, Tracking Error

JEL Classification: G11, G14

Suggested Citation

Dunham, Lee M. and Simpson, Thuy H., An Analysis of the Impact of Securities Lending on the Performance of ETFs (November 1, 2014). Journal of Wealth Management, Volume 17, Number 4, p. 75-84, 2015. Available at SSRN: https://ssrn.com/abstract=2965018

Lee M. Dunham (Contact Author)

Creighton University - College of Business Administration ( email )

United States
(402) 280-2637 (Phone)

HOME PAGE: http://https://business.creighton.edu/faculty-directory-profile/433/lee-dunham

Thuy H. Simpson

University of Nebraska-Lincoln ( email )

Lincoln, NE 68588
United States

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