Exchange-Traded Funds: Issues and Studies
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Since the introduction of the first exchange-traded fund (ETF) in the form of Standard & Poor’s Depository Receipts (SPDRs) in 1993, ETFs have become popular investment vehicles in the financial markets. At the end of October 2008, assets under management totaled $460 billion, a reduction of $300 billion since the end of March 2008 in response to the credit crisis. ETFs offer multiple advantages to investors, including easy diversification in the equity, fixed income, and even commodities markets, low cost, tax efficiency, continuous pricing, and low premiums/discounts from the net asset value (NAV) of the underlying assets. However, it is possible for the ETF to exhibit premiums or discounts from the net asset value of the underlying assets due to their structure and dividend treatment. Unlike traditional mutual funds, ETFs can be sold short and purchased on margin. Although the ETF market has shrunk in response to the credit crisis, new innovations in the ETF include active management and retirement ETF products.