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Conventional mutual index funds versus exchange-traded funds

Author

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  • Agapova, Anna

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.

Suggested Citation

  • Agapova, Anna, 2011. "Conventional mutual index funds versus exchange-traded funds," Journal of Financial Markets, Elsevier, vol. 14(2), pages 323-343, May.
  • Handle: RePEc:eee:finmar:v:14:y:2011:i:2:p:323-343
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    References listed on IDEAS

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    1. 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.
    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. Edwin J. Elton, 2002. "Spiders: Where Are the Bugs?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 453-472, July.
    5. Plancich, Stephanie, 2003. "Mutual Fund Capital Gain Distributions and the Tax Reform Act of 1997," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(1), pages 271-296, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Shank, Corey A. & Vianna, Andre C., 2016. "Are US-Dollar-Hedged-ETF investors aggressive on exchange rates? A panel VAR approach," Research in International Business and Finance, Elsevier, vol. 38(C), pages 430-438.
    2. Itzhak Ben-David & Francesco A. Franzoni & Rabih Moussawi, 2016. "Exchange Traded Funds (ETFs)," Swiss Finance Institute Research Paper Series 16-64, Swiss Finance Institute.
    3. F. Riva & A. Calamia & L. Deville, 2013. "Liquidity in European equity ETFs: What really matters?," Post-Print hal-00846610, HAL.
    4. David Puelz & Carlos M. Carvalho & P. Richard Hahn, 2015. "Optimal ETF Selection for Passive Investing," Papers 1510.03385, arXiv.org, revised Nov 2015.
    5. Li, Mingsheng & Zhao, Xin, 2014. "Impact of leveraged ETF trading on the market quality of component stocks," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 90-108.
    6. Lechman, Ewa & Marszk, Adam, 2015. "ICT technologies and financial innovations: The case of exchange traded funds in Brazil, Japan, Mexico, South Korea and the United States," Technological Forecasting and Social Change, Elsevier, vol. 99(C), pages 355-376.
    7. Hilliard, Jitka, 2014. "Premiums and discounts in ETFs: An analysis of the arbitrage mechanism in domestic and international funds," Global Finance Journal, Elsevier, vol. 25(2), pages 90-107.
    8. repec:eee:reveco:v:55:y:2018:i:c:p:21-36 is not listed on IDEAS
    9. 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.
    10. repec:pes:ierequ:v:12:y:2017:i:1:p:83-100 is not listed on IDEAS
    11. Adam Marszk & Ewa Lechman & Harleen Kaur, 2017. "Financial Markets Diffusion Patterns. The Case Of Mexican Investment Funds," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 12(1), pages 83-100, March.
    12. António Afonso & Pedro Cardoso, 2017. "Exchange-traded Funds as an Alternative Investment Option: a Case Study," Working Papers REM 2017/22, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    13. repec:eee:jfinec:v:125:y:2017:i:3:p:537-560 is not listed on IDEAS
    14. Laura Andreu & Laurens Swinkels & Liam Tjong-A-Tjoe, 2013. "Can exchange traded funds be used to exploit industry and country momentum?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(2), pages 127-148, June.
    15. repec:eee:ecofin:v:42:y:2017:i:c:p:285-299 is not listed on IDEAS

    More about this item

    Keywords

    ETF Index fund Substitute Clientele;

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