Explains Hougan (2014), low expenses are the main characteristic that investors look for when selecting an ETF. Challenging this common practice, Hougan develops a compelling theory that it is more important for investors to consider tracking difference, defined as the difference between the net-of-expense return on an ETF and the return on its benchmark index, when they go about selecting an ETF. Inspired by Hougan’s theory, this study examines the impact of both expenses and tracking difference on ETF performance. The relationship between expenses and performance is much stronger than the relationship between tracking difference and performance. This study shows that the slightly positive relationship between tracking difference and performance is attributable to the fact that funds with higher tracking difference tend to have lower expenses.
Associate Professor of Finance, California State University, Fullerton
- ETFs- Active vs. Passive Investing- Opportunities for firms to invest in the future of the Mihaylo College's CFP Board-Registered Personal Financial Planning Program
Tuesday October 2, 2018 11:30am - 12:20pm CDT
Michigan 1A