ETF Liquidation Determinants

Abstract

The exchange-traded fund (ETF) market has dramatically increased in size and influence. With this growth, there has been an increase in the number of liquidations. We find that the decision to liquidate an ETF is primarily based on ETF characteristics; however, we observe additional considerations related to fund family and investment objective characteristics. Failures are more likely to occur when an ETF is small and when it is launched by a struggling family or into a struggling investment objective. We find fund, family, and market characteristics at the time of creation greatly impact an ETF’s likelihood of survival. Furthermore, we observe few, but significant, differences between the decision to close an ETF and the decision to close an actively managed mutual fund. Whereas ETFs show relatively greater dependence on the well-being of their investment objective, mutual funds show a greater dependence on their fund specific performance.

Keywords: Exchange-Traded Fund, ETF, Liquidation, Fund Closure

JEL Classification: G10, G11, G23