Why Don’t Investors Trade ETF

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Why Don’t Investors Trade ETF 周周Edward H. Chow Professor of Finance, NCC U Dean of College of Commer ce 2006/7

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Why Don’t Investors Trade ETF. 周行一 Edward H. Chow Professor of Finance, NCCU Dean of College of Commerce 2006/7. No. of Investors trading different categories of stocks post ETF. 單位:人次. Percentage of Investors trading different categories of stocks post ETF. - PowerPoint PPT Presentation

Transcript of Why Don’t Investors Trade ETF

Page 1: Why Don’t Investors Trade ETF

Why Don’t Investors Trade ETF

周行一 Edward H. ChowProfessor of Finance, NCCU

Dean of College of Commerce2006/7

Page 2: Why Don’t Investors Trade ETF

No. of Investors trading different categories of stocks post ETF

單位:人次

Page 3: Why Don’t Investors Trade ETF

Percentage of Investors trading different categories of stocks post ETF

Page 4: Why Don’t Investors Trade ETF

Percentage of Investors trading different categories of stocks post ETF

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

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0630

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only 成份股

only ETFonly Others

+Others成份股

ETF+Others+ETF成份股

+ETF+Others成份股

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No. of Investors trading ETF and other stocks post ETF

單位:人次

Page 6: Why Don’t Investors Trade ETF

Percentage of Investors trading ETF and other stocks post ETF

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Percentage of Investors trading ETF and other stocks post ETF

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

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only ETFETF+Others

+ETF成份股

+ETF+Others成份股

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No. of NEW Investors trading different categories of stocks post ETF

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Percentage of NEW Investors trading different categories of stocks post ETF

Page 10: Why Don’t Investors Trade ETF

新進入市場投資人 ( 新市場 ) 投資在成份股、 ETF與其他證券佔當月新市場總人數的比重

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

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new_成份股 new_ETF new_Others new_ +others成份股 new_ETF+Others new_ +ETF成份股 new_ +ETF+Others成份股

Page 11: Why Don’t Investors Trade ETF

Percentage of NEW Investors trading ETF and other stocks post ETF

Page 12: Why Don’t Investors Trade ETF

Percentage of NEW Investors trading ETF and other stocks post ETF

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

2003

07

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new_ETFnew_ETF+Othersnew_ +ETF成份股

new_ +ETF+Others成份股

Page 13: Why Don’t Investors Trade ETF

New investors as a percentage of total no. of investors in different categories of stocks

Page 14: Why Don’t Investors Trade ETF

New investors as a percentage of total no. of investors in different categories of stocks

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2003

07

2003

08

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09

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10

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11

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01

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02

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only成份股

ETFOthers

+Others成份股

ETF+Others+ETF成份股

+ETF+Others成份股

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Theoretical reasons for people to trade ETF

• Diversification• Low transaction cost

– Barring tax considerations (Taiwan does not have capital gain tax), for wealthy long-term investors cost of diversified portfolio could be lower than that of ETF (due to management fee of ETF)

• Trading strategy• Arbitrage

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Empirical findings on the ETF in Taiwan

• Weekly tracking error is about 0.862 basis point– Annual tracking error is about 28.4 basis

points from 1993 to 1998 (Elton et al.) • Cash dividend seems to be the villain for

the tracking error in Taiwan• Premium/discount has improved since the

new block trade rule and the exemption of up-tick rule for the ETF component stocks

Page 17: Why Don’t Investors Trade ETF

Suggestions for increasing the demand for ETF

• Market ETF with the help of financial planners• Increase the frequency of distribution of cash dividend to ETF investors• Reduce the management fee of ETF• Improve trading mechanism – e.g., block trade, price limit, and off-exchange trading, etc.

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結論及 Q&A• Thank you for your attention• Have a wonderful life