Thursday, February 1, 2018

Exchange Traded Funds 101

I have written some short articles on ETFs trying to discuss potential liquidity problems, some inappropriate structures, and trading costs (as opposed to buying and holding) and I have some more articles planned as I have time to write.

The newest edition of the Journal of Economic Perspectives has an interesting article, which is linked in my Daily Research Links available to subscribers, entitled "Exchange-Traded Funds 101 for Economists".  While the article addresses structure and types of funds, liquidity, trading implications,
systemic risk, investor misconception and lack of sophistication in understanding the types of ETFs, etc., the paper is not overly concerned about trading and liquidity in a flash drop or rapidly dropping market, which may be an understated evaluation between a flash drop and recovery and a rapidly dropping market sustained throughout a day or longer such as we saw in 2007/2008.

The full paper is well worth reading at the Journal of Economic Perspectives and I would encourage you to do so.

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