Why Don’t Investors Trade ETF 周行一 Edward H. Chow Professor of Finance, NCCU Dean of College of Commerce 2006/7

No. of Investors trading different categories of stocks post ETF 單位：人次

Percentage of Investors trading different categories of stocks post ETF

No. of Investors trading ETF and other stocks post ETF 單位：人次

Percentage of Investors trading ETF and other stocks post ETF

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

Percentage of NEW Investors trading ETF and other stocks post ETF

New investors as a percentage of total no. of investors in different categories of stocks

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 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