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Abusing ETFs

Author

Listed:
  • Utpal Bhattacharya
  • Benjamin Loos
  • Steffen Meyer
  • Andreas Hackethal

Abstract

Using data from a large German brokerage, we find that individuals investing in passive exchange-traded funds (ETFs) do not improve their portfolio performance, even before transaction costs. Further analysis suggests that this is because of poor ETF timing as well as poor ETF selection (relative to the choice of low-cost, well-diversified ETFs). An exploration of investor heterogeneity shows that though investors who trade more have worse ETF timing, no groups of investors benefit by using ETFs, and no groups will lose by investing in low-cost, well-diversified ETFs.

Suggested Citation

  • Utpal Bhattacharya & Benjamin Loos & Steffen Meyer & Andreas Hackethal, 2017. "Abusing ETFs," Review of Finance, European Finance Association, vol. 21(3), pages 1217-1250.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:3:p:1217-1250.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw041
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Household finance; ETFs; Security selection; Timing;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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