What Determines an Exchange-traded Fund Launch?

44 Pages Posted: 23 Mar 2021 Last revised: 27 May 2021

See all articles by Xinrui Zheng

Xinrui Zheng

University of Cambridge - Judge Business School

Date Written: September 1, 2020

Abstract

This paper studies the decision by an asset manager to launch an exchange-traded fund (ETF). Fund families focus on both revenue generation and cost reduction when making launching decisions, with new ETF launches being driven more by investor demand than past performance. The ETF industry exhibits significant economies of scale and scope, allowing larger families to benefit from specialization while giving smaller families pressure to expand their product line. Competitors tend to follow the asset allocation decisions of the three largest ETF providers, unless when it comes to less liquid or highly concentrated objective markets. Finally, a time-to-event analysis shows that an ETF survives for longer if launched by fund families with larger size and higher fees, and whose initiation is not driven by excessive flows into the family.

Keywords: Exchange-traded fund (ETF), launching decision, fund family, investor demand, flow, volume, market concentration

JEL Classification: G10, G11, G12

Suggested Citation

Zheng, Xinrui, What Determines an Exchange-traded Fund Launch? (September 1, 2020). Available at SSRN: https://ssrn.com/abstract=3810120 or http://dx.doi.org/10.2139/ssrn.3810120

Xinrui Zheng (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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