Why Don’t Investors Trade ETF
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Transcript of 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
No. of Investors trading different categories of stocks post ETF
單位:人次
Percentage of Investors trading different categories of stocks post 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%
2003
0630
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2004
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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
No. of Investors trading ETF and other stocks post ETF
單位:人次
Percentage of Investors trading ETF and other stocks post ETF
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%
2003
07
2003
08
2003
09
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10
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11
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12
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01
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02
2004
03
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04
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05
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07
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09
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10
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12
only ETFETF+Others
+ETF成份股
+ETF+Others成份股
No. of NEW Investors trading different categories of stocks post ETF
Percentage of NEW Investors trading different categories of stocks post 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%
2003
06
2003
07
2003
08
2003
09
2003
10
2003
11
2003
12
2004
01
2004
02
2004
03
2004
04
2004
05
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06
2004
07
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08
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09
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10
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11
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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
Percentage of NEW Investors trading ETF and other stocks post 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
2003
08
2003
09
2003
10
2003
11
2003
12
2004
01
2004
02
2004
03
2004
04
2004
05
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06
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07
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new_ETFnew_ETF+Othersnew_ +ETF成份股
new_ +ETF+Others成份股
New investors as a percentage of total no. of investors in different categories of stocks
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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12
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09
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only成份股
ETFOthers
+Others成份股
ETF+Others+ETF成份股
+ETF+Others成份股
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
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
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.
結論及 Q&A• Thank you for your attention• Have a wonderful life