Retail Investing in Passive Exchange Traded Funds

33 Pages Posted: 17 Feb 2020

See all articles by Catherine D'Hondt

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance

younes elhichou

UCLouvain - UCLouvain, Louvain School of Management - Louvain Finance

Mikael Petitjean

Catholic University of Lille - IÉSEG School of Management, Lille Campus; Lille Economie & Management (LEM) UMR 9221; Louvain School of Management (UCL); Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Date Written: January 21, 2020

Abstract

Using a large set of trading accounts, we study the determinants of retail investing in passive Exchange Traded Funds (P-ETFs). Controlling for investor characteristics related to their risk-return profile, trading activity, and socio-demographics, we show that the probability and magnitude of P-ETF investing by retail investors can be explained by financial knowledge, financial experience, and behavioral biases such as overconfidence and local bias. We also show that the more active P-ETF users hold a lower number of stocks and modify the composition of their stock portfolio less extensively, pointing to a substitution effect between stocks and P-ETFs.

Keywords: Behavioral biases, ETFs, Financial literacy, Passive investing, Retail investors

JEL Classification: G11, G40, G53

Suggested Citation

D'Hondt, Catherine and Elhichou, Younes and Petitjean, Mikael, Retail Investing in Passive Exchange Traded Funds (January 21, 2020). Available at SSRN: https://ssrn.com/abstract=3522963 or http://dx.doi.org/10.2139/ssrn.3522963

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance ( email )

151 Chaussée de Binche
Mons, 7000
Belgium

Younes Elhichou (Contact Author)

UCLouvain - UCLouvain, Louvain School of Management - Louvain Finance ( email )

Chaussée de Binche,151
Mons, 7000
Belgium
+3265323441 (Phone)

Mikael Petitjean

Catholic University of Lille - IÉSEG School of Management, Lille Campus ( email )

3 rue de la Digue
Lille, 59000
France
0032497301266 (Phone)
59000 (Fax)

Lille Economie & Management (LEM) UMR 9221 ( email )

Lille
France

Louvain School of Management (UCL) ( email )

Belgium

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

34 Voie du Roman Pays - L1.03.01
Louvain-la-Neuve, 1348
Belgium

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