ETF Launching Decisions within a Fund Family Complex

Abstract

We investigate asset managers' decisions to launch exchange-traded funds (ETFs) and their interactions with open-ended mutual funds (MFs) within the same fund family. While past performance, investor flows, and economies of scale are shared determinants for ETF and open-ended MF launches, ETF launches also depend on market liquidity and investor demand. ETF industry concentration hinders competition. Fund families with outperforming active MFs tend to capitalize on their brand names and launch ETFs, irrespective of the presence of index MFs. The launching family benefits from abnormal inflows despite no improvements in aggregate performance.

Keywords: Exchange-traded fund (ETF), launching, fund family, market concentration, externalities

JEL Classification: G10, G11, G12