Essays on exchange-traded funds
Romero Pérez, Herminio
MetadataShow full item record
The dissertation consists of two essays about Exchange-Traded-Funds (ETFs). An ETF is an investment company with shares that trade intraday on stock exchanges at market-determined prices. ETFs offer investors a proportionate share in a portfolio of stocks, bonds, or other securities. Typically, the investment objective is to match designated market indexes and attempt to achieve the same investment return as those market indexes. Essay 1 is titled “A look at side-by-side management: Evidence from ETFs and mutual funds”. This essay studies the case when a mutual fund family simultaneously offers (side-by-side management) index mutual funds and index exchange-traded funds (ETFs), which track the same index. There is an examination of the flow of funds to each investment vehicle for two groups: a group of funds where the index mutual fund was created before the index ETF; and a group of funds where the index mutual fund and ETF inception date is the same. The study find that index ETFs and index mutual funds are complements for both groups considered. A possible explanation is that investors that decide to invest in an index divide their investment money between both investment vehicles. Essay 2 deals with “Causes for the mortality of Exchange-Traded Funds”. An Exchange-Traded Fund (ETF) is a relatively new investment product that has gained the attention of investors and academics by combining some of the features of its predecessors, like mutual funds or closed-end funds. Since the creation of the first ETF trading in US markets in 1992, the ETF industry have continuously growing in the number of ETFs and the asset under management, particularly during the years 2000 to 2008. A significant episode in the ETF industry is the fact that 50 ETFs were liquidated during the year 2008. This study tries to identify the factors related to the closing of these ETFs by comparing the sample of liquidated ETFs to a matched sample of active ETFs at the end of 2008. The ETF Liquidity and the Tracking error are the factors with the highest statistical significance. The ETF return and Index returns are also associated with the liquidations. The values of the explanatory variables associated with higher probabilities of liquidation are the lower liquidity values, higher tracking errors, and higher ETF and Index returns. We find evidence that ETFs market makers are profiting from the creation of new ETFs shares just before liquidating the ETFs shares at a premium.