IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v36y2023i3p987-1042..html

Competition for Attention in the ETF Space

Author

Listed:
  • Itzhak Ben-David
  • Francesco Franzoni
  • Byungwook Kim
  • Rabih Moussawi
  • Ralph Koijen

Abstract

The interplay between investors’ demand and providers’ incentives has shaped the evolution of exchange-traded funds (ETFs). While early ETFs invested in broad-based indexes and therefore offered diversification at low cost, more recent products track niche portfolios and charge high fees. Strikingly, over their first 5 years, specialized ETFs lose about 30 (risk-adjusted). This underperformance cannot be explained by high fees or hedging demand. Rather, it is driven by the overvaluation of the underlying stocks at the time of the launch. Our results are consistent with providers catering to investors’ extrapolative beliefs by issuing specialized ETFs that track attention-grabbing themes.

Suggested Citation

  • Itzhak Ben-David & Francesco Franzoni & Byungwook Kim & Rabih Moussawi & Ralph Koijen, 2023. "Competition for Attention in the ETF Space," The Review of Financial Studies, Society for Financial Studies, vol. 36(3), pages 987-1042.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:3:p:987-1042.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhac048
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jozef Barunik & Lukas Janasek & Attila Sarkany, 2025. "Tailoring Portfolio Choice via Quantile-Targeted Policies," Papers 2510.19271, arXiv.org.
    2. Braga, Maria Debora & Genoni, Giulia & Vacca, Gianmarco, 2025. "Detecting exuberance phenomena in thematic investing," Finance Research Letters, Elsevier, vol. 75(C).
    3. Albert J. Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüß & Michael Razen & Utz Weitzel & David Abad‐Díaz & Menachem (Meni) Abudy , 2024. "Nonstandard Errors," Journal of Finance, American Finance Association, vol. 79(3), pages 2339-2390, June.
      • Albert J. Menkveld & Anna Dreber & Félix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüss & Michael Razen & Utz Weitzel & Gunther Capelle-Blancard, 2021. "Non-Standard Errors," Documents de travail du Centre d'Economie de la Sorbonne 21033, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
      • Moinas, Sophie & Declerck, Fany & Menkveld, Albert J. & Dreber, Anna, 2023. "Non-Standard Errors," TSE Working Papers 23-1451, Toulouse School of Economics (TSE).
      • Utz Weitzel & Michael Razen & Sebastian Neussüs & Michael Kirchler & Magnus Johannesson & Juergen Huber & Felix Holzmeister & Anna Dreber & Albert J. Menkveld & Javier Gil-Bazo, 2021. "Non-Standard Errors," Working Papers 1303, Barcelona School of Economics.
      • Menkveld, Albert J. & Dreber, Anna & Holzmeister, Felix & Huber, Jürgen & Johannesson, Magnus & Kirchler, Michael & Neusüss, Sebastian & Razen, Michael & Weitzel, Utz, 2021. "Non-standard errors," IWH Discussion Papers 11/2021, Halle Institute for Economic Research (IWH).
      • Albert J. Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neussüs & Michael Razen & Utz Weitzel & Christian T. Brownlees & Javier Gil-Baz, 2021. "Non-standard errors," Economics Working Papers 1807, Department of Economics and Business, Universitat Pompeu Fabra.
      • Menkveld, Albert J. & Dreber, Anna & Holzmeister, Felix & Huber, Juergen & Johannesson, Magnus & Kirchler, Michael & Neusüss, Sebastian & Razen, Michael & Weitzel, Utz & Abad-Díaz, David & Abudy, Mena, 2021. "Non-Standard Errors," Working Papers 2021:17, Lund University, Department of Economics.
      • Albert J. et al. Menkveld, 2021. "Non-Standard Errors," CESifo Working Paper Series 9453, CESifo.
      • Albert J Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüss & Michael Razen & Utz Weitzel & Gunther Capelle-Blancard & David Abad-Dí, 2021. "Non-Standard Errors," Post-Print halshs-03500882, HAL.
      • Albert J. Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neus ss & Michael Razen & Utz Weitzel & Edwin Baidoo & Michael Fr mmel & et al, 2021. "Non-Standard Errors," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 21/1032, Ghent University, Faculty of Economics and Business Administration.
      • Menkveld, Albert J. & Dreber, Anna & Holzmeister, Felix & Huber, Juergen & Johannesson, Magnus & Hasse, Jean-Baptiste & e.a.,, 2023. "Non-Standard Errors," LIDAM Reprints LFIN 2023002, Université catholique de Louvain, Louvain Finance (LFIN).
      • Menkveld, Albert J. & Dreber, Anna & Holzmeister, Felix & Huber, Juergen & Johannesson, Magnus & Kirchler, Michael & Neusüß, Sebastian & Razen, Michael & Weitzel, Utz & Abad-Díaz, David & Abudy, Menac, 2024. "Nonstandard errors," LSE Research Online Documents on Economics 123002, London School of Economics and Political Science, LSE Library.
      • Albert Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüß & Michael Razen & Utz Weitzel & David Abad-Díaz & Tobias Adrian & Yacine Ai, 2024. "Nonstandard Errors," Post-Print hal-04676112, HAL.
      • Menkveld, A. & Dreber, A. & Holzmeister, F. & Huber, J. & Johannesson, M. & Kirchler, M. & Neusüss, S. & Razen, M. & Neusüss, S. & Neusüss, S., 2021. "Non-Standard Errors," Cambridge Working Papers in Economics 2182, Faculty of Economics, University of Cambridge.
      • Menkveld, Albert J. & Dreber, Anna & Holzmeister, Felix & Huber, Jürgen & Johannesson, Magnus & Kirchler, Michael & Neusüss, Sebastian & Razen, Michael & Weitzel, Utz, 2021. "Non-standard errors," SAFE Working Paper Series 327, Leibniz Institute for Financial Research SAFE.
      • Albert Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüß & Michael Razen & Utz Weitzel & David Abad-Díaz & Tobias Adrian & Yacine Ai, 2024. "Nonstandard Errors," Post-Print hal-05077550, HAL.
      • Albert Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüß & Michael Razen & Utz Weitzel & David Abad-Díaz & Tobias Adrian & Yacine Ai, 2024. "Nonstandard Errors," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-05077550, HAL.
      • Albert J. Menkveld & Anna Dreber & Felix Holzmeister & Jürgen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüss & Michael Razen & Utz Weitzel & David Abad-Dí­az & Menachem Abudy & Tobi, 2021. "Non-Standard Errors," Working Papers 2021-31, Faculty of Economics and Statistics, Universität Innsbruck.
      • Albert J Menkveld & Anna Dreber & Felix Holzmeister & Juergen Huber & Magnus Johannesson & Michael Kirchler & Sebastian Neusüss & Michael Razen & Utz Weitzel & Gunther Capelle-Blancard & David Abad-Dí, 2021. "Non-Standard Errors," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03500882, HAL.
      • Wolff, Christian & Menkveld, Albert J. & Dreber, Anna & Holzmeister, Felix & Huber, Juergen & Johannesson, Magnus & Kirchler, Michael & Neusüess, Sebastian & Razen, Michael & Weitzel, Utz, 2021. "Non-Standard Errors," CEPR Discussion Papers 16751, C.E.P.R. Discussion Papers.
    4. Cao, Yunhong & Gu, Huiling, 2025. "The correlation between ETF shareholding, accounting information value, and investment efficiency," Finance Research Letters, Elsevier, vol. 81(C).
    5. Mariia Kosar & Sergei Mikhalishchev, 2022. "Inattentive Price Discovery in ETFs," CERGE-EI Working Papers wp735, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Han, SeungOh, 2024. "Hedging strategies for U.S. factor and sector exchange-traded funds during geopolitical events," Finance Research Letters, Elsevier, vol. 65(C).
    7. Han, SeungOh, 2025. "Dynamic hedging strategies for U.S. investors in international stock ETFs following geopolitical conflicts," Finance Research Letters, Elsevier, vol. 72(C).
    8. Galindo Gil, Hamilton & Lazo-Paz, Renato, 2025. "An ETF-based measure of stock price fragility," Journal of Financial Markets, Elsevier, vol. 72(C).
    9. Kostovetsky, Leonard & Warner, Jerold, 2025. "Investor heterogeneity and the market for fund benchmarks: Evidence from passive ETFs," Journal of Banking & Finance, Elsevier, vol. 173(C).
    10. Ante, Lennart & Saggu, Aman, 2025. "Quantifying a firm's AI engagement: Constructing objective, data-driven, AI stock indices using 10-K filings," Technological Forecasting and Social Change, Elsevier, vol. 212(C).
    11. Joseph Levine, 2021. "Investment AUM Fee Costs: Evaluating a Simple Formula," Papers 2107.00837, arXiv.org, revised Oct 2023.
    12. Tang, Lu & Tan, Eric K.M. & Low, Rand, 2024. "Complements or substitutes? The effect of ETFs on other managed funds," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    13. Ning, Wei & Zhao, Jiahua & Jiang, Fuwei, 2024. "ETFs and tail dependence: Evidence from Chinese stock market," Journal of International Money and Finance, Elsevier, vol. 149(C).
    14. Han, SeungOh, 2025. "Evaluating the hedging potential of energy, metals, and agricultural commodities for U.S. stocks post-COVID-19," The North American Journal of Economics and Finance, Elsevier, vol. 77(C).
    15. Andreas Hackethal & Tobin Hanspal & Dominique M Lammer & Kevin Rink, 2022. "The Characteristics and Portfolio Behavior of Bitcoin Investors: Evidence from Indirect Cryptocurrency Investments [The investor in structured retail products: advice driven or gambling oriented]," Review of Finance, European Finance Association, vol. 26(4), pages 855-898.
    16. Lee, Geul & Ryu, Doojin, 2024. "Investor sentiment or information content? A simple test for investor sentiment proxies," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:36:y:2023:i:3:p:987-1042.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.