Competition for Attention in the ETF Space

78 Pages Posted: 27 Jan 2021 Last revised: 8 Jul 2023

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

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Byungwook Kim

University of California, Irvine - Paul Merage School of Business

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania

Multiple version iconThere are 3 versions of this paper

Date Written: January 2021

Abstract

The interplay between investors' demand and providers' incentives has shaped the evolution of exchange-traded funds (ETFs). While early ETFs invest in broad-based indexes and therefore offered diversification at low cost, later products track niche port- folios and charge high fees. Strikingly, over their first five years, specialized ETFs lose about 30% in risk-adjusted terms. This underperformance cannot be explained by high fees or hedging demand. Rather, it is driven by the overvaluation of the underlying stocks at the time of the launch. Our results are consistent with providers catering to investors' extrapolative beliefs by issuing specialized ETFs that track attention- grabbing themes.

Suggested Citation

Ben-David, Itzhak and Franzoni, Francesco A. and Kim, Byungwook and Moussawi, Rabih, Competition for Attention in the ETF Space (January 2021). NBER Working Paper No. w28369, Available at SSRN: https://ssrn.com/abstract=3772608

Itzhak Ben-David (Contact Author)

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

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National Bureau of Economic Research (NBER) ( email )

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Francesco A. Franzoni

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
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Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Byungwook Kim

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
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 ( email )

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216 Vance Hall
Philadelphia, PA 19104-6301
United States

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

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