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Retail Investing in Passive Exchange Traded Funds

Author

Listed:
  • D'Hondt, Catherine

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Elhichou Elmaya, Younes

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Petitjean, Mikael

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

Abstract

Using a large set of trading accounts, we study the determinants of retail investing in passive Exchange Traded Funds (P-ETFs). Controlling for investor characteristics related to their risk-return profile, trading activity, and socio-demographics, we show that the probability and magnitude of P-ETF investing by retail investors can be explained by financial knowledge, financial experience, and behavioral biases such as overconfidence and local bias. We also show that the more active P-ETF users hold a lower number of stocks and modify the composition of their stock portfolio less extensively, pointing to a substitution effect between stocks and P-ETFs.

Suggested Citation

  • D'Hondt, Catherine & Elhichou Elmaya, Younes & Petitjean, Mikael, 2020. "Retail Investing in Passive Exchange Traded Funds," LIDAM Discussion Papers LFIN 2020013, Université catholique de Louvain, Louvain Finance (LFIN).
  • Handle: RePEc:ajf:louvlf:2020013
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    More about this item

    Keywords

    Behavioral biases; ETFs; Financial literacy; Passive investing; Retail investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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