Investor Attention And Exchange Traded Fund Returns In South Africa: The Role Of Investors’ Internet Search Activity

In recent years, exchange-traded fund (ETF) markets have grown exponentially due to their rising popularity amongst retail investors with a preference for passive investments. However, the effect of this rising popularity on the performance of ETF markets remains understudied. Therefore, the objective of this study is to explore the effect of investor attention on the returns of South African ETFs. To achieve this objective, a sample of 80 JSE-listed ETFs is examined using a panel regression approach for the period 2 January 2018 to 30 December 2022. The results obtained suggest that investor attention has a negative effect on ETF returns in line with the Investor Recognition Hypothesis. However, further analysis reveals that this negative effect is only significant for ETFs with domestic benchmarks and ETFs tracking equity benchmarks. Additional analysis also reveals that the negative effect of investor attention diminished after South Africa reported its first case of COVID-19. Noteworthy is that global investor attention also exhibits a significant effect of the returns of these funds. Overall, these findings indicate that investor attention contains information that is useful in explaining ETF price movements and, therefore, has important implications for various stakeholders.