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Exchange-traded Funds, Investment Strategies, and Financial Stability

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Listed:
  • Baumann, Michael Heinrich
  • Herz, Bernhard
  • Baumann, Michaela

Abstract

Exchange-traded Funds (ETFs) are easy to understand, cost-efficient ways of investing in asset markets that have become very popular for both institutional and retail investors. The dynamics of the index and its underlying assets depend among others on the different types of traders in the market, price trends in individual stocks and the overall market, as well as over- or undervaluation of individual stocks and the index. Investing in an index of assets via an ETF can generate quite complex and sometimes counterintuitive investment behaviors on the level of individual assets. Seemingly stabilizing investment behavior on the level of the ETF might actually lead to destabilizing effects on the level of individual stocks.

Suggested Citation

  • Baumann, Michael Heinrich & Herz, Bernhard & Baumann, Michaela, 2018. "Exchange-traded Funds, Investment Strategies, and Financial Stability," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181542, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc18:181542
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange-traded index funds; ETF; index fund; financial stability; trading behavior;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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