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Conventional mutual index funds versus exchange-traded funds

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  • Agapova, Anna
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    Abstract

    This paper examines the implications of substitutability of two similar investment vehicles: conventional index mutual funds and exchange-traded funds (ETFs). It seeks to explain the coexistence of these vehicle types, which offer a claim on the same underlying index return process, but have distinctly different organizational structures. This study compares aggregate fund flows into conventional open-ended index funds to those into ETFs for various underlying indexes. The study shows that conventional funds and ETFs are substitutes, but not perfect substitutes for one another. Evidence suggests that the coexistence of both instruments can be explained by a clientele effect that segregates the two vehicles into different market niches.

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    File URL: http://www.sciencedirect.com/science/article/B6VHN-51858W9-1/2/24ed9eabeb3d71582255aff4e3dd28b3
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 14 (2011)
    Issue (Month): 2 (May)
    Pages: 323-343

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    Handle: RePEc:eee:finmar:v:14:y:2011:i:2:p:323-343

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    Web page: http://www.elsevier.com/locate/finmar

    Related research

    Keywords: ETF Index fund Substitute Clientele;

    References

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    1. Plancich, Stephanie, 2003. "Mutual Fund Capital Gain Distributions and the Tax Reform Act of 1997," National Tax Journal, National Tax Association, vol. 56(1), pages 271-96, March Cit.
    2. Joel M. Dickson & John B. Shoven, 1994. "A Stock Index Mutual Fund Without Net Capital Gains Realizations," NBER Working Papers 4717, National Bureau of Economic Research, Inc.
    3. Yan, An, 2006. "Leasing and Debt Financing: Substitutes or Complements?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 709-731, September.
    4. James M. Poterba & John B. Shoven, 2002. "Exchange-Traded Funds: A New Investment Option for Taxable Investors," American Economic Review, American Economic Association, vol. 92(2), pages 422-427, May.
    5. Edwin J. Elton, 2002. "Spiders: Where Are the Bugs?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 453-472, July.
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    Cited by:
    1. Anna Calamia & Laurent Deville & Fabrice Riva, 2013. "Liquidity in European Equity ETFs: What Really Matters?," GREDEG Working Papers 2013-10, Groupe de REcherche en Droit, Économie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    2. Blitz, David & Huij, Joop, 2012. "Evaluating the performance of global emerging markets equity exchange-traded funds," Emerging Markets Review, Elsevier, vol. 13(2), pages 149-158.

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