European Exchange-Traded Funds Research Articles

Performance of US and European Exchange Traded Funds: A Base Point-Slack-Based Measure Approach

This study evaluates the performance of United States (US) and European Exchange Traded Funds (ETFs) using the non-oriented version of the base point-slack-based measure (BP-SBM) Data Envelopment Analysis (DEA) model, which allows for handling negative data that can arise in some of the metrics traditionally used in this type of analysis. Our findings show that US efficient ETFs are considered benchmarks more often than European efficient ETFs. Nonetheless, it was possible to conclude that European inefficient ETFs were generally less inefficient than US ETFs. Our findings also show that ETFs’ efficiency (particularly for US ETFs) in the short run is more related to risk than to profitability factors. This implies that as the time horizon lengthens, the importance of profitability factors for the ETFs’ financial performance grows.

The European ETF Market: Growth, Trends, and Impact on Underlying Instruments

This article presents some key figures about the European market for exchange-traded funds (ETFs), with a focus on growth, key trends, and impact on underlying instruments. One particular important area of growth is the environmental, social, and governance (ESG) ETF segment, with the market size in Europe exceeding that in the United States both in terms of assets under management (AUM) and number of products, although the gap has tended to decrease slightly over time. Turning to ETF ownership, the authors find several reasons to expect the impact of ETFs on European equity markets to be more modest than that documented in the academic literature for the US equity markets, namely a materially lower level of average ETF ownership and a primarily international ownership (i.e., located in the United States). These figures are put in perspective with the results of a survey carried out during the first quarter of 2021, which provides insights into European professional investor perceptions of ETFs. The survey also reveals a particularly strong appetite for ESG-themed funds, and ETFs appear to be a useful instrument for integrating an ESG component into investment decisions. <b>TOPICS:</b>ESG investing, exchange-traded funds and applications, developed markets, performance measurement <b>Key Findings</b> ▪ ETF ownership of European stocks is about half that of US stocks; the European ESG ETF market size exceeds that in the United States, both in terms of AUM and the number of products, but incremental AUM are now almost on par. ▪ European investors show great interest in SRI/ESG investment, with 55% of ETF users already investing in SRI/ESG in 2021 and 68% of those who have not yet done so considering integrating ESG into their portfolios in the near future. ▪ ETFs appear to be a useful instrument for integrating an SRI/ESG component into investment, with 67% of respondents using them to do so and 60% wishing to see further developments in SRI/ESG-based ETFs and/or low-carbon ETFs.

Exchange-Traded Funds on European Markets: Has Critical Mass been Reached? Implications for Financial Systems.

Exchange-traded funds (ETFs) are one of the most rapidly expanding categories of financial products in Europe. One of the key yet still unanswered questions is whether European ETF markets have reached the size at which they could affect the financial systems. In our study, we examine 13 European countries during the period 2004–2017 in order to trace whether the share of ETFs in the total assets of investment funds has reached the ‘critical’ level that makes possible their further growth and can be associated with an influence on the financial system. We use a novel methodological approach that identifies the ‘critical mass’ along diffusion trajectories. Our results show that, in 10 countries, the share of ETFs in assets of investment funds increased. Still, in most countries, the share of ETFs did not exceed 1%. Estimates of the diffusion models indicate that the process of growing shares of ETFs was most dynamic and relatively most stable in Switzerland and United Kingdom. Results of the critical mass analysis imply that its achievement may be forecasted exclusively in these two cases. However, even in such cases there is no substantial evidence for a possible significant influence of ETFs on the local financial systems.

Application of Diffusion Models in the Analysis of Financial Markets: Evidence on Exchange Traded Funds in Europe

Exchange traded funds (ETFs) are financial innovations that may be considered as a part of the index financial instruments category, together with stock index derivatives. The aim of this paper is to explore the trajectories and formulates predictions regarding the spread of ETFs on the financial markets in six European countries. It demonstrates ETFs’ development trajectories with regard to stock index futures and options that may be considered as their substitutes, e.g., in risk management. In this paper, we use mathematical models of the diffusion of innovation that allow unveiling the evolutionary patterns of turnover of ETFs; the time span of the analysis is 2004–2015, i.e., the period of dynamic changes on the European ETF markets. Such an approach has so far rarely been applied in this field of research. Our findings indicate that the development of ETF markets has been strongest in Italy and France and weaker in the other countries, especially Poland and Hungary. The results highlight significant differences among European countries and prove that diffusion has not taken place in all the cases; there are also considerable differences in the predicted development paths.

The Role of the Local Information Demand for Cross-Listed Securities: Evidence From European Cross-Listed ETFs

We investigate how the local information demand explains the market outcomes in cross-listed European Exchange Traded Funds (ETFs). Our results show that the local information demand predicts the future trading volume and, to a lesser extent, the future net fund flows. The effects of the information demand are much stronger when the institutional ownership of the traded ETF is low. Our evidence implies that retail investors, unlike institutional investors, trade and process information regarding securities locally regardless of the domicile of the underlying investment. Our findings hence lend support to the perceived role of familiarity bias, although its prominence and impact vary between countries.

ETFS – performance, tracking errors and their determinants in Europe and the USA

Exchange-traded funds (ETFs) have grown considerably since their first introduction two and a half decades ago, becoming one of the most popular passive investment vehicles among retail and professional investors. However, their tracking ability is often questioned. In this paper we estimate tracking errors from a sample of 15 American and European ETFs utilizing three different methods. We find that American ETFs seem to exhibit lower tracking errors than European ETFs in all measurements of tracking error. We also analyse and discuss the factors that influence tracking error. Fund size and expense ratios are found to be affecting the tracking ability of ETFs. The results of this study concerning the performance and tracking error determinants of ETFs are consistent with the evidence presented in the literature. To our knowledge, this is the first study to compare American and European ETFs in terms of their tracking ability and their tracking error determinants.

Connecting VIX and Stock Index ETF with VAR and Diagonal BEKK

As stock market indexes are not tradeable, the importance and trading volume of Exchange-Traded Funds (ETFs) cannot be understated. ETFs track and attempt to replicate the performance of a specific index. Numerous studies have demonstrated a strong relationship between the S&amp;P500 Composite Index and the Volatility Index (VIX), but few empirical studies have focused on the relationship between VIX and ETF returns. The purpose of the paper is to investigate whether VIX returns affect ETF returns by using vector autoregressive (VAR) models to determine whether daily VIX returns with different moving average processes affect ETF returns. The ARCH-LM test shows conditional heteroskedasticity in the estimation of ETF returns, so that the Diagonal BEKK (named after Baba, Engle, Kraft and Kroner) model is used to accommodate multivariate conditional heteroskedasticity in the VAR estimates of ETF returns. Daily data on ETF returns that follow different stock indexes in the USA and Europe are used in the empirical analysis, which is presented for the full data set, as well as for the three sub-periods Before, During, and After the Global Financial Crisis. The estimates show that daily VIX returns have: (1) significant negative effects on European ETF returns in the short run; (2) stronger significant effects on single-market ETF returns than on European ETF returns; and (3) lower impacts on the European ETF returns than on S&amp;P500 returns. For the European markets, the estimates of the mean equations tend to differ between the whole sample period and the sub-periods, but the estimates of the matrices A and B in the Diagonal BEKK model are quite similar for the whole sample period and at least two of the three sub-periods. For the US Markets, the estimates of the mean equations also tend to differ between the whole sample period and the sub-periods, but the estimates of the matrices A and B in the Diagonal BEKK model are very similar for the whole sample period and the three sub-periods.

ZŁOŻONOŚĆ INNOWACYJNYCH PRODUKTÓW FINANSOWYCH: PRZYPADEK SYNTETYCZNYCH EXCHANGE TRADED FUNDS W EUROPIE

The aim of the text is the presentation of the most important categories of exchange traded funds (ETFs) – physical and synthetic ones. A theoretical part of the text includes an overview of the main features of ETFs, the presentation of the differences between physical and synthetic funds and the main risks posed by both types to their users and the whole financial systems. An empirical part focuses on the European market. The time span of the analysis covers the years 2001-2015 (or shorter periods in cases of lack of sufficient data). Using key statistics regarding the European ETFs market, its size, structure (both historically and currently) as well as predictions of the main future changes are discussed. The main results of the research indicate that the size of the European ETFs market, both in terms of the assets under management and number of listed funds, has been growing in recent years, yet at a rate lower than before the global financial crisis. An important observed change on the European ETFs market is the declining share of synthetic ETFs after their peak popularity in 2010. The most recent data from the first months of 2015 confirm this trend. Considering the data on cash flows into these two categories, physical ETFs will most probably continue to increase their market share compared to synthetic ones

ETFs Performance Europe - A Good Start or Not?

Abstract Under the premises that the U.S. Exchange Traded Funds (ETFs) hold over 70% of the ETFs’ World market, it seems that the European ones have been either under-researched or less demanded. This study provides some insights into the performance of two ETFs hubs, holding over 80% of the European ETFs activity, namely those operating in Luxembourg and Ireland, due also to their tax similarities. Following an updated literature review on the topic, the paper compares these two ETFs hubs by using secondary data publicly available, interpreted under a framework of previously identified performance methods: Tracking Error, Jensen's alpha and Modigliani- M 2 measure of performance. This methodology completes the descriptive statistics analysis, while aiming at answering two hypotheses. The first hypothesis states that the Tracking Error of ETFs compared to their benchmark or market indexes equals zero, which is confirmed by the study. The second hypothesis suggests that these particular ETFs do not present significant alphas, which is partially confirmed. Moreover, the second hypothesis is tested not only against various features of these funds ‘benchmarks, but also from risk measurement perspectives, while employing correlation significance between the two countries ETFs. Overall, it appears that from the risk adjusted performance perspective, the ETFs domiciled in Luxembourg outperform the Irish ones, leading also to potential M&As in this industry.

Overview of the European Exchange-Traded Fund and Exchange-Traded Product Industry

Exchange-traded funds (ETFs) in Europe are still a relatively new product, celebrating only their thirteenth anniversary in April 2013. ETFs have been one of the most useful financial innovations developed in the past 25 years. This overview of the European ETF and ETP industry discusses the many benefits that the products offer as well as their perceived benefits compared with alternative products will continue to be factors that fuel their growth in use by institutional investors, financial advisers, and retail investors in Europe and globally. <b>TOPICS:</b>Exchange-traded funds and applications, developed

Quest for Diversification: Should U.S. Investors Venture into European ETFs?

The recent explosion of country- and region-specific exchange-traded funds (ETFs) has given rise to some basic questions on how to select the right ETF for a specific purpose. ETFs gained tremendous popularity with individual investors and money managers due to their ability to provide investors with diversification at a very low cost of ownership. But just as mutual funds reached a saturation point, have ETFs also reached this point where few, if any, additional ETFs are providing diversification benefits? The question to be answered in the study is whether European ETFs with higher diversification benefits require a cost of ownership premium relative to other ETFs. Using a sample of European country-specific ETFs and continental Europe ETFs, the author finds that ETFs with high expense ratios and high turnover provided a positive and significant diversification benefit to investors. European ETFs with higher fees and turnover experienced lower levels of return correlation with the SPY over the last five years. Unfortunately, those higher expense ratios and turnover levels were not significant in explaining ETF performance, leaving investors with the difficult question, Where do European ETFs fit for an investor seeking diversification?

Tracking Error of Traditional and Synthetic European Exchange-Traded Funds

This article investigates the ability of traditional and synthetic European exchange-traded funds (ETFs) to replicate the returns of the target benchmarks. The findings show that both traditional and synthetic ETFs traded in Europe are affected by a significant tracking error. Evidence suggests that the ETFs that follow a synthetic replication strategy instead of holding the benchmark underlying securities enjoy a lower tracking error and a higher tax efficiency. Moreover, they are particularly efficient when tracking the emerging market benchmarks. However, synthetic ETFs underperform both the benchmarks and the traditional counterparts. JEL Classification: G15; G23

Tracking Error of Traditional and Synthetic European Exchange-Traded Funds

Tracking Error of Traditional and Synthetic European Exchange-Traded Funds

European Exchange-Traded Funds: An Overview

European Exchange-Traded Funds: An Overview

European Exchange-Traded Funds

ETFs are index-based investment products that allow investors to buy or sell exposure to an index through a single financial instrument. ETFs have been available in North America since the early 1990s. Only recently have they caught the imagination of investors in Europe, where they have seen significant growth in the last year. In this article, we provide an overview of the ETF market in Europe. We also examine carefully practical issues that investors should consider, liquidity issues, short exposures, costs, and futures block trading and exchange of futures for physicals with ETFs.