Exchange-Traded Funds and the New Dynamics of Investing

Ananth N. Madhavan

Financial Management Association Survey and Synthesis

Features the first academic treatment of ETFs and passive index investing
Makes several controversial claims, including the argument that ETFs are a disruptive innovation
Stems from the author's academic background and industry experience
Explores an important and under-studied area of finance; ETFs are the fastest growing segment in the mutual fund industry

Exchange-Traded Funds and the New Dynamics of Investing

Ananth N. Madhavan

Financial Management Association Survey and Synthesis

Description

In Exchange-Traded Funds and the New Dynamics of Investing, Ananth Madhavan examines the quiet transformation of asset management through the rise of passive or index investing. A closely-related phenomenon is the rise of exchange-traded funds (ETFs). An ETF is an investment vehicle that trades intraday and seeks to replicate the performance of a specific index. ETFs have grown substantially in size, diversity, and market significance in recent years. These trends have generated considerable interest, especially from retail and institutional investors and increasingly from academics, regulators and the press. ETFs have the power to be a disruptive innovation to today's asset management industry because many traditional active managers and hedge funds deliver a significant fraction of their active returns via static exposures to factors like value. Indeed, for the first time ever, assets in global ETFs exceeded $3 trillion in 2015, passing the amount in hedge funds.

Exchange-Traded Funds and the New Dynamics of Investing

Ananth N. Madhavan

Financial Management Association Survey and Synthesis

1. The Current Landscape
2. Structure and Mechanics
3. Price Dynamics and Arbitrage
4. Valuation
5. Performance and Benchmark Tracking
6. Liquidity and Transaction Costs
7. Uses of ETFs
8. Fixed Income
9. Commodities
10. Foreign Currency
11. Investing in Volatility
12. Alternatives and Multi-Asset Strategies
13. Active Strategies
14. Smart Beta and Factor Investing
15. Flows
16. Leveraged and Inverse Products
17. Systemic Risk
18. Public Policy Issues
19. Future Opportunities

Exchange-Traded Funds and the New Dynamics of Investing

Ananth N. Madhavan

Financial Management Association Survey and Synthesis

Author Information

Ananth Madhavan is Managing Director and Global Head of Research for iShares, the world's largest provider of exchange-traded funds. Previous positions include the Global Head of Trading Research and Transitions at Barclays Global Investors, and Head of Research at ITG Inc., an electronic brokerage firm. Dr. Madhavan has also had an extensive career as a professor at the University of Southern California and the Wharton School of the University of Pennsylvania.

Exchange-Traded Funds and the New Dynamics of Investing

Ananth N. Madhavan

Financial Management Association Survey and Synthesis

Reviews and Awards

"Exchange-Traded Funds and the New Dynamics of Investing is an essential reference and a thought-provoking commentary for professional investors in all asset classes. Readers will be able to incorporate what they learn from reading the book into immediate practice, either through modeling and backtesting or through actual active investing using passive instruments." -- Financial Analysts Journal

"Ananth Madhavan delivers a clear, accessible, and authoritative exposition of modern investment theory and the role of exchange-traded funds. His treatment integrates the perspectives of investors, investment managers, ETF producers, ETF arbitrageurs and regulators in a unified framework. The analysis draws on well-founded principles of financial economics, but also the real world experience and insights of a seasoned practitioner. Investment professionals, academics, and regulators will find here a thorough reference and guide to the active use of passive strategies and the exchange-traded fund universe." -- Joel Hasbrouck, Kenneth G. Langone Professor of Business Administration and Professor of Finance, Stern School of Business, New York University

"ETFs are the fastest growing segment of the mutual fund industry. Madhavan's comprehensive and accessible book delivers a structured framework for understanding the ETF market, with a perfect balance of academic rigor and practical value. This book is an essential guide to one of the most important investment vehicles in today's markets, and will be a valuable resource to academics, individual investors, and the most sophisticated institutional investors." -- Donald B. Keim, John B. Neff Professor of Finance, and Director, Rodney L. White Center for Financial Research, The Wharton School, University of Pennsylvania