Three Essays on Active ETFs

Abstract

This thesis studies actively managed exchange-traded funds (AETFs). In the first chapter, I investigate the impact of daily holdings disclosure requirement on AETFs’ activeness level. Using data on equity AETFs traded in the US market, I find that ETFs are generally more active than their comparable mutual funds (CMFs). The results are robust across various activeness measures and are generally consistent across different investment styles. The greater activeness can be due to the fact that AETFs are a new product and so their managers need to differentiate their funds from mutual funds and try to generate excess returns. In the second chapter, I extend the investigation into the impact of daily disclosure requirement on the performance of AETFs, using both returns-based and holdings-based approaches. I find that, firstly, AETFs, on average, underperform their CMFs and have more negative market-timing skills. Secondly, an examination of characteristic holdings-based metrics indicates that the average stock-selection ability of AETFs is inferior to that of CMFs. Lastly, an evaluation of portfolio trades suggests that AETFs struggle to generate positive returns from their trades, while the CMFs seem able to generate significant returns from the stocks that they buy. In the third chapter, I study the factors that affect the likelihood of AETFs termination and compare them to those of actively managed mutual funds (AMFs). I find that age and expenses appear to hold limited significance for AETFs, in contrast to their potential importance for AMFs. Further, contrary to the case of AMFs, fund excess returns have no discernible impact on the likelihood of liquidation of AETFs. Lastly, the performance of other funds within the same objectives holds more substantial influence over the likelihood of AETFs liquidation than individual fund attributes do.