Competition for Attention in the ETF Space

45 Pages Posted: 14 Jan 2021 Last revised: 12 Mar 2021

See all articles by Itzhak Ben-David

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Francesco A. Franzoni

USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Byungwook Kim

Ohio State University (OSU) - Department of Finance

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

Multiple version iconThere are 3 versions of this paper

Date Written: March 9, 2021

Abstract

Exchange-traded funds (ETFs) are the most prominent financial innovation of the last three decades. Early ETFs offered broad-based portfolios at low cost. As competition became more intense, issuers started offering specialized ETFs that track niche portfolios and charge high fees. Specialized ETFs hold stocks with salient characteristics--high past performance, media exposure, and sentiment--that are appealing to retail and sentiment-driven investors. After their launch, these products perform poorly as the hype around them vanishes, delivering negative risk-adjusted returns. Overall, financial innovation in the ETF space follows two paths: broad-based products that cater to cost-conscious investors and expensive specialized ETFs that compete for the attention of unsophisticated investors.

Keywords: exchange-traded funds, ETFs, financial innovation, competition, attention, retail investors, trading, securities, mutual funds, financial intermediation, overvaluation

JEL Classification: G12, G14, G15

Suggested Citation

Ben-David, Itzhak and Franzoni, Francesco A. and Kim, Byungwook and Moussawi, Rabih, Competition for Attention in the ETF Space (March 9, 2021). Fisher College of Business Working Paper No. 2021-03-001, Charles A. Dice Center Working Paper No. 2021-01, Swiss Finance Institute Research Paper No. 21-03, Available at SSRN: https://ssrn.com/abstract=3765063 or http://dx.doi.org/10.2139/ssrn.3765063

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

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HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

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HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Francesco A. Franzoni

USI Lugano ( email )

Via G. Buffi 13
Lugano, 6904
Switzerland

Swiss Finance Institute

Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Byungwook Kim

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Rabih Moussawi

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 2051
Villanova, PA 19085
United States

HOME PAGE: http://www.homepage.villanova.edu/rabih.moussawi

University of Pennsylvania - The Wharton School ( email )

United States

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