Flow

Dannhauser, Caitlin D; Pontiff, Jeffrey

doi:10.2139/ssrn.3428702

Cited by 21 publications

(7 citation statements)

References 52 publications

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“…Then, we estimate a non-parametric relation between nextperiod flows and period-t raw returns using local polynomials approximations.Consistent with the results in Table2, the figure shows that the return-chasing behavior of investors in broad-based ETF differs from that in specialized ETFs. The results are consistent with performance-chasing in the ETF market, as documented inDannhauser and Pontiff (2019); however, here we find that the sensitivity of flows to past returns is significantly higher for specialized ETFs, consistent with investors paying more attention to past performance in this segment of the market.19 5 The "Quality" of Specialized ETFsHaving established that broad-based and specialized ETFs present different form of competition, we turn to exploring the value propositions in these two segments. While there is little doubt about the value created by broad-based ETFs in terms of facilitated market access and low-cost diversification, the case for value creation by specialized ETFs is less clear.…”

supporting

confidence: 81%

Competition for Attention in the ETF Space

Ben‐David

Franzoni

Kim

et al. 2022

The Review of Financial Studies

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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.

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supporting

confidence: 81%

Competition for Attention in the ETF Space

Ben‐David

Franzoni

Kim

et al. 2022

The Review of Financial Studies

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“…In contrast, for passive funds (column 2), the estimated coefficients on contemporaneous and lagged returns are statistically insignificant. These results are comparable to findings in the contemporaneous paper by Dannhauser and Pontiff (2019) that the flow-performance relationship is weaker for passive equity MFs than for active funds. Column 3 reports the results of a pooled regression of active and passive MFs, now with two observations per month.…”

Section: Growth Ofsupporting

confidence: 87%

The Shift From Active to Passive Investing: Potential Risks to Financial Stability?

Anadu¹,

Kruttli²,

McCabe³

et al. 2019

SSRN Journal

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The past couple of decades have seen a significant shift from active to passive investment strategies. We examine how this shift affects financial stability through its impacts on: (i) funds' liquidity and redemption risks, (ii) asset-market volatility, (iii) asset-management industry concentration, and (iv) comovement of asset returns and liquidity. Overall, the shift appears to be increasing some risks and reducing others. Some passive strategies amplify market volatility, and the shift has increased industry concentration, but it has diminished some liquidity and redemption risks. Finally, evidence is mixed on the links between indexing and comovement of asset returns and liquidity.

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“…The overall role of correlated demand in determining asset prices is likely greater than what is documented here. Correlated demand also can arise from other sources such as demand for certain styles driven by institutional frictions (Froot and Teo, 2008;Koijen and Yogo, 2019) and performance chasing in index-linked products (Broman, 2016;Dannhauser and Pontiff, 2019). Taken together, these findings should alter the way economists interpret systematic price movements: instead of solely reflecting fundamental risks, they also may be determined by nonfundamental demand.…”

Section: Discussionmentioning

confidence: 99%