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The Unexpected Activeness of Passive Investors: A Worldwide Analysis of ETFs

Author

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  • Si Cheng
  • Massimo Massa
  • Hong Zhang

Abstract

The global ETF industry provides more complicated investment vehicles than low-cost index trackers. Instead, we find that the real investments of ETFs may deviate from their benchmarks to leverage informational advantages (which leads to a surprising stock-selection ability) and to help affiliated OEFs through cross-trading. These effects are more prevalent in ETFs domiciled in Europe. Moreover, ETF flows seem to respond to additional risk. These results have important normative implications for consumer protection and financial stability.Received March 18, 2017; Editorial decision October 14, 2018 by Editor Raman Uppal. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Si Cheng & Massimo Massa & Hong Zhang, 2019. "The Unexpected Activeness of Passive Investors: A Worldwide Analysis of ETFs," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 9(2), pages 296-355.
    • Handle: RePEc:oup:rasset:v:9:y:2019:i:2:p:296-355.
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    File URL: http://hdl.handle.net/10.1093/rapstu/ray011
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    Cited by:

    1. Joey W. Yang & Lewis May & John Gould, 2023. "Exchange‐traded fund ownership and underlying stock mispricing," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S1), pages 1417-1445, April.
    2. Yutaka Kurihara & Shinichiro Maeda & Akio Fukushima, 2021. "Have the Purchases of ETF Raised Stock Prices? Recent Japanese Case," Bulletin of Applied Economics, Risk Market Journals, vol. 8(1), pages 109-119.

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    Keywords

    G20;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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