ICT Technologies and Financial Innovations: The Case of Exchange Traded Funds in Brazil, Japan, Mexico, South Korea and the United States

Abstract

Exchange traded funds (ETFs), funds structured in order to mimic the performance of selected financial assets, are one of the most significant innovative financial instruments recently introduced. They have gained considerable popularity among investors due to their advantages in comparison with conventional mutual funds, investment vehicles with a significantly longer history. This paper contributes by providing extensive knowledge about the empirical links between information and communications technology (ICT) penetration and the introduction of financial innovations in emerging economies. We examine the impact of increasing ICT penetration on the assets of exchange traded funds in Brazil, Mexico, Japan and South Korea and the United States. Our methodological framework includes descriptive statistics, logistic growth models applied to estimate ETF market development patterns, and panel data analysis used to test the hypothesized relationship between increasing ICT penetration and ETF market development. Our empirical findings collectively indicate that in all countries the growth of ICT has been pervasive and accompanied by a rapid development of ETF markets. Furthermore, the relationship between increasing ICT penetration and ETF market development is found to be strong, positive and statistically significant in Japan, Mexico, the United States and South Korea; while in Brazil the analogous relationship is relatively weak, although still positive.