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Competition for Attention in the ETF Space

Author

Listed:
  • Itzhak Ben-David

    (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER))

  • Francesco A. Franzoni

    (USI Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR))

  • Byungwook Kim

    (Ohio State University (OSU) - Department of Finance)

  • Rabih Moussawi

    (Villanova University - Department of Finance; University of Pennsylvania - The Wharton School)

Abstract

Exchange-traded funds (ETFs) are the most prominent financial innovation of the last three decades. Early ETFs offered broad-based portfolios at low cost. As competition became more intense, issuers started offering specialized ETFs that track niche portfolios and charge high fees. Specialized ETFs hold stocks with salient characteristics--high past performance, media exposure, and sentiment--that are appealing to retail and sentiment-driven investors. After their launch, these products perform poorly as the hype around them vanishes, delivering negative risk-adjusted returns. Overall, financial innovation in the ETF space follows two paths: broad-based products that cater to cost-conscious investors and expensive specialized ETFs that compete for the attention of unsophisticated investors.

Suggested Citation

  • Itzhak Ben-David & Francesco A. Franzoni & Byungwook Kim & Rabih Moussawi, 2021. "Competition for Attention in the ETF Space," Swiss Finance Institute Research Paper Series 21-03, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2103
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    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

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