DP11988 The Unexpected Activeness of Passive Investors: A World-Wide Analysis of ETFs

Author(s):	Si Cheng, Massimo Massa, Hong Zhang
Publication Date:	April 2017
Keyword(s):	banks, Distress, ETFs, shadow banking, Subsidization
JEL(s):	G20
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=11988

The global ETF industry provides more complicated investment vehicles than just low-cost index trackers. Instead, we find that the real investments of ETFs deviates 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. Market awareness of such additional risk is reflected in ETF outflows. These results have important normative implications for consumer protection and financial stability