Anthony Limburg

Index Disruption: The Promise and Pitfalls of Self-Indexed ETFs (with Bige Kahraman and Sida Li)

Abstract: 

Self-indexed ETFs, which track indices created and maintained by ETF issuers themselves, rather than relying on external index providers, are disrupting the index provision market. This paper asks whether this practice ultimately benefits end-investors. Contrary to proponents’ expectations, self-indexing ETFs neither offer more competitive fees, nor enhance product variety in a way that improves financial returns for investors. Instead, our results highlight a conflict of interest: ETF issuers who also act as wealth managers offer self-index ETFs which charge their clients significantly higher fees for largely comparable portfolios.

Presentations: Saïd Business School Finance Seminar (2024), FMA Europe (2025), MFA (2025), SEC CFMR (2025), UZH Rising Scholars (2025)

Media Coverage: ETF Stream (1), ETF Stream (2)

Do Firms Self-Select Into Russell Indices? (single-authored)

Abstract: 

I investigate whether firms change their behaviour to increase the odds of joining stock indices, in the context of the yearly Russell 1000/2000 reconstitutions. I show that firms close to Russell 2000 inclusion do not manage real earnings, do not adjust earnings guidances or dividend payments, and do not time equity issuance and repurchase announcements in order to manipulate firm valuation. These findings hold even for firms with managers which would benefit most from index inclusion - those with high performance-pay, low inside ownership and short decision horizons. I provide novel evidence that Russell 1000/2000 Index assignment is random near the threshold. 

Stock Market Concentration Risk (single-authored)

Abstract:

Holding the market portfolio does not diversify away idiosyncratic firm risk when the distribution of firm size is fat-tailed. This is why some investors are increasingly worried about the implications of increased stock market concentration on portfolio risk. Using international stock market data from more than 40 countries between 1989 and 2024, I find that stock market concentration and aggregate volatility are only weakly related, while there is no link between concentration and Sharpe ratios. I shed light on a key factor behind this: stock market concentration increases are usually driven by large firms growing into mega firms. These mega firms increase diversification of business activities, reduce R&D spending, and hold more cash, which reduces their idiosyncratic volatility. In essence, characteristics of mega firms partly mitigate the effects of market concentration risk. By matching U.S. empirics to a simple model, I estimate that superior risk characteristics of large firms decrease uncompensated, idiosyncratic concentration risk by almost 80%. Accordingly, equal-weight mutual funds do not outperform their value-weight counterparts on a risk-adjusted basis. These findings put into question whether stock index weight limits serve investor purpose.

Covert Exposure (single-authored)

Abstract: 

A 2025 U.S. presidential executive order permits 401(k) portfolios to include alternative asset classes. I show that a growing number of U.S. equities already offers returns which are predominantly driven by the performance of other asset classes such as precious metals, cryptocurrencies, real estate or other private assets. Using holdings data from actively managed U.S. equity mutual funds, I also document that a large share of fund managers invests in such stocks. These funds effectively gain covert exposure to non-equity strategies while remaining within formal mandate boundaries. Unlike exposure to lottery stocks, covert exposure is not associated with poor management and end-of-year return window-dressing attempts. Instead, covert exposure is highly persistent and provides significant, non-linear diversification benefits to end-investors. A moderate level of covert exposure between 2% and 4% maximizes Sharpe ratios and returns while minimizing volatility. In the time-series, funds which increase covert exposure typically suffer worse returns and Sharpe ratios, indicating poor timing of marginal adjustments. Finally, covert exposure is also significant in widely held indices. As a result, most investors already hold material exposure to non-traditional asset classes. Direct investments in alternatives may lead to unintended overexposure.

The Innovation Externatlity of Diversification (single-authored, job market paper)

More information coming soon.