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Cited by 24Financial Markets and Investment StrategiesCorporate Finance and GovernanceFinance, Markets, and Regulation

Index providers: Whales behind the scenes of ETFs

Open access
An, Yu, Benetton, Matteo, Song, Yang·2023·Journal of Financial Economics
DOI 10.1016/j.jfineco.2023.06.003
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Abstract

Most ETFs replicate indexes licensed by index providers. We show that index providers wield strong market power and charge large markups to ETFs that are passed on to investors. We document three stylized facts: (i) the index provider market is highly concentrated; (ii) investors care about the identities of index providers, although they explain little variation in ETF returns; and (iii) over one-third of ETF expense ratios are paid as licensing fees to index providers. A structural decomposition attributes 60% of licensing fees to index providers’ markups. Counterfactual analyses show that improving competition among index providers reduces ETF expense ratios by up to 30%.

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Crossref · 10.1016/j.jfineco.2023.06.003

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Authors
An, Y., Benetton, M., & Song, Y.
Affiliations
  • Johns Hopkins University (US)
  • University of California, Berkeley (US)
  • University of Washington (US)
Corresponding author
Benetton, Matteo
ORCID
Venue
Journal of Financial Economics
Publisher
Elsevier BV
Published
2023-09
Volume
149
Issue
3
Pages
407-433
ISSN
0304-405X (ISSN-L)
DOI
10.1016/j.jfineco.2023.06.003
OpenAlex
W4382723924
Cited by
24
References
41
Citations by year
2026: 6 · 2025: 7 · 2024: 6 · 2023: 3 · 2022: 1 · 2012: 1
Type
paratext
Language
en
Open access
Licence
Locations
Journal of Financial Economics (publishedVersion, cc-by)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
  • Social Sciences › Economics, Econometrics and Finance › Finance › Finance, Markets, and Regulation
Keywords
index providers, exchange-traded funds, market power, markups, competition, structural decomposition, index replication

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