The Value of ETF Liquidity

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dc.contributor.authorKhomyn, M.
dc.contributor.authorPutnins, T.
dc.contributor.authorZoican, M.
dc.contributor.editorGoldstein, I.
dc.date.issued2024
dc.description.abstractWe analyze how ETFs compete. Drawing on a new model and empirical analysis, we show that ETF secondary market liquidity plays a key role in determining fees. More liquid ETFs for a given index charge higher fees and attract short-horizon investors who are more sensitive to liquidity than to fees. Higher turnover from these investors sustains the ETF’s high liquidity, allowing the ETF to extract a rent through its fee, and creating a first-mover advantage. Liquidity segmentation through clientele effects generates welfare losses. Our findings resolve the apparent paradox that higher-fee ETFs not only survive but also flourish in equilibrium.
dc.description.statementofresponsibilityMarta Khomyn, Talis Putniņš, Marius Zoican
dc.identifier.citationThe Review of Financial Studies, 2024; 37(10):3092-3148
dc.identifier.doi10.1093/rfs/hhae041
dc.identifier.issn0893-9454
dc.identifier.issn0893-9454
dc.identifier.orcidKhomyn, M. [0000-0002-4244-6663]
dc.identifier.urihttps://hdl.handle.net/2440/142709
dc.language.isoen
dc.publisherOxford University Press
dc.rights© The Authors 2024. Published by Oxford University Press. This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contact journals.permissions@oup.com
dc.source.urihttp://dx.doi.org/10.1093/rfs/hhae041
dc.subjectETF secondary market liquidity, fees
dc.titleThe Value of ETF Liquidity
dc.typeJournal article
pubs.publication-statusPublished

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