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What drives the market for exchange-traded notes?

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  • Rakowski, David
  • Shirley, Sara

Abstract

Exchange-traded notes (ETNs) are a relatively new form of security design that appear similar to exchange-traded funds (ETFs), but with no underlying portfolio holdings. We identify those characteristics of ETNs that are distinct from ETFs, and we test which ETN characteristics are most associated with interest from investors. We find that some ETNs have return patterns that are not spanned by ETFs, while other ETNs employ different strategies to attract investors. We show that the market activity for ETNs is associated with the distinctiveness of ETN returns, improvements in tracking errors, access to leverage, and the extent of risk transformation that ETNs allow.

Suggested Citation

  • Rakowski, David & Shirley, Sara, 2020. "What drives the market for exchange-traded notes?," Journal of Banking & Finance, Elsevier, vol. 111(C).
  • Handle: RePEc:eee:jbfina:v:111:y:2020:i:c:s0378426619302766
    DOI: 10.1016/j.jbankfin.2019.105702
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    Cited by:

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    2. Christophe J. GODLEWSKI & Katarzyna BYRKA-KITA & Renata GOLA & Jacek CYPRYJANSKI, 2022. "Silence is not golden anymore? Social media activity and stock market valuation in Europe," Working Papers of LaRGE Research Center 2022-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. John, Alexander & DeVault, Luke, 2023. "Implicit leverage: Can accrued fees cause levered ETN returns?," Finance Research Letters, Elsevier, vol. 55(PB).

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    More about this item

    Keywords

    Exchange-traded notes (ETNs); Exchange-traded funds (ETFs); Financial innovation; Mean-variance spanning; Security design; Exchange-traded products (ETPs); Tracking error;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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