Yuet Ning Chau

Focus We investigate the role of actively managed exchange-traded funds (AETFs) as a disciplinary mechanism in the asset management industry, which distinguishes AETFs from traditional mutual funds and passive ETFs. We explore how the unique short-selling feature of AETFs enables investors to penalise underperforming fund managers, thereby enhancing market efficiency.

Actively managed mutual funds invest with the goal of outperforming a benchmark index or achieving an investment objective. Many academic studies focus on whether mutual funds outperform benchmark returns and debate whether abnormal returns can be attributed to skill or luck. While that debate is still unsettled, little attention has been devoted to stock selection strategies adopted by the actively managed mutual funds to outperform their benchmarks.