Exchange Traded Funds: History, Trading, and Research
TLDR
In the early 1990s, exchange traded funds (ETFs) as mentioned in this paper were introduced to U.S. and Canadian stock exchanges, and they became one of the most successful financial innovation since the advent of financial futures.Abstract:
One of the most spectacular successes in financial innovation since the advent of financial futures is probably the creation of exchange traded funds (ETFs). As index funds, they aim at replicating the performance of their benchmark indices as closely as possible. Contrary to conventional mutual funds, however, ETFs are listed on an exchange and can be traded intradaily. Issuers and exchanges set forth the diversification opportunities they provide to all types of investors at a lower cost, but also highlight their tax efficiency, transparency, and low management fees. All of these features rely on a specific “in-kind” creation and redemption principle: New shares can continuously be created by depositing a portfolio of stocks that closely approximates the holdings of the fund; similarly, investors can redeem outstanding ETF shares and receive the basket portfolio in return. Holdings are transparent since fund portfolios are disclosed at the end of the trading day. ETFs were introduced to U.S. and Canadian exchanges in the early 1990s. In the first several years, they represented a small fraction of the assets under management in index funds. However, the 132% average annual growth rate of ETF assets from 1995 through 2001 (Gastineau, 2002) illustrates the increasing importance of these instruments. The launching of Cubes in 1999 was accompanied by a spectacular growth in trading volume, making the major ETFs the most actively traded equity securities on the U.S. stock exchanges. Since then, ETF markets have continued to grow, not only in the number and variety of products, but also in terms of assets and market value. Initially, they aimed at replicating broad-based stock indices; new ETFs extended their fields to sectors, international markets, fixed-income instruments, and, lately, commodities. By the end of 2005, 453 ETFs were listed around the world, for assets worth $343 billion. In the United States, overall ETF assets totaled $296.02 billion, compared to $8.9 trillion in mutual funds.read more
Citations
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From Performativity to Political Economy: Index Investing, ETFs and Asset Manager Capitalism
TL;DR: In this article, an analysis of the gradual, performative evolution of the investment intermediation market is presented, where the traditional high-cost model of active asset management has been challenged by the emergence of a low-cost alternative in the form of index-tracking investment funds.
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Investor sentiment and feedback trading: Evidence from the exchange-traded fund markets
TL;DR: In this article, the authors extend the standard feedback trading model of Sentana and Wadhwani (1992) by allowing the demand for shares by feedback traders to depend on sentiment and find that the influence of sentiment on feedback trading varies across market regimes.
Journal ArticleDOI
ICT technologies and financial innovations: The case of exchange traded funds in Brazil, Japan, Mexico, South Korea and the United States
Ewa Lechman,Adam Marszk +1 more
TL;DR: In this article, the authors examined the impact of increasing ICT penetration on the assets of exchange traded funds in Brazil, Mexico, Japan and South Korea and the United States and found that in all countries the growth of ICT has been pervasive and accompanied by a rapid development of ETF markets.
Journal ArticleDOI
A Taxonomy of the ‘Dark Side’ of Financial Innovation: The Cases of High Frequency Trading and Exchange Traded Funds
TL;DR: In this paper, a taxonomy of the "dark side" of financial innovation is developed and applied to two recent high-profile financial innovations; exchange traded funds (ETFs) and high frequency trading (HFT).
Journal ArticleDOI
A taxonomy of the ‘dark side’ of financial innovation: the cases of high frequency trading and exchange traded funds
Ivan Diaz-Rainey,Gbenga Ibikunle +1 more
TL;DR: The authors developed a taxonomy of the dark side of financial innovation and applied it to two recent high-profile financial innovations; exchange traded funds (ETFs) and high frequency trading (HFT).
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