Research

(Coauthored with Dong-Hyun Ahn and Soohun Kim)

Abstract: This paper examines the interplay between investor demand and fund provider incentives within the specialized ETF segment. Assuming distinct preferences between retail and institutional investors, we develop reduced-form demand models that extend the analysis beyond alphas and management fees to include betas and other dimensions. For ETFs predominantly held by institutional investors, the beta distribution exhibits a central tendency below 1 and a narrow dispersion. In contrast, the beta distribution for ETFs primarily held by retail investors displays a wide dispersion, thick tails, and a central tendency above 1. Over time, we observe notable declines in both beta values and management fees for specialized ETFs predominantly held by institutional investors. This trend suggests a shift in bargaining power from ETF providers to institutional clients, driven by increasing competition among ETF providers. However, specialized ETFs primarily held by retail investors exhibit no significant changes in their beta distributions or management fees over time.

Abstract: This paper examines the effect of prominence within specialized exchange-traded funds (ETFs), referred to as the ``glittering effect,'' as a driver of investor attention and retail demand for constituent stocks. The analysis documents that stocks designated as top 10 holdings attract disproportionate attention from individual investors, which in turn temporarily increases retail ownership and stock prices around ETF inception. In contrast, the remaining constituents exhibit no comparable shifts in attention or demand. These findings suggest that simple disclosure of ETF portfolio holdings in descending order of weights can capture retail investor attention, stimulate trading activity, and generate significant short-term effects on stock prices.

(Coauthored with Dong-Hyun Ahn)

Abstract: This paper revisits the idiosyncratic volatility puzzle (IVOL) by decomposing total idiosyncratic variance into two distinct components: a Beta-related part, driven by deviations of market beta from one, and a True part, reflecting the residual variance orthogonal to beta. Relying on total idiosyncratic variance alone conflates these components and obscures their distinct pricing implications. To address this issue, we implement a conditional double-sorting method that first ranks stocks by their Beta-related variance and then by their True variance. We find that stocks in the lowest quintiles of both components earn large abnormal returns, remain resilient during recessions, and consistently outperform the market with near-one betas. In contrast, stocks in the highest quintiles of both components experience the poorest performance. These findings demonstrate that decomposing idiosyncratic variance provides a sharper lens to distinguish between stocks with truly favorable risk–return profiles and those with truly unfavorable ones.

Park, Hayeon (2024). “Speculation Sentiment in Korea.” , Korean Journal of Financial Studies, 53(1), 49–102.

Abstract: This paper investigates which stocks are included in newly launched exchange-traded funds (ETFs) and how these inclusion patterns shape subsequent ETF performance. In the Korean market, bespoke indexes are often developed in tandem with ETF launches, enabling providers to design indexes that incorporate specific stocks. Using the universe of Korean equity ETFs, I identify two channels of constituent selection: a return channel that favors pre-launch winners and a retail channel that favors stocks with concentrated retail demand. These channels operate only in specialized ETFs and are absent in broad-based ETFs. At the ETF level, funds with greater exposure to such stocks attract larger retail inflows but subsequently underperform while charging higher fees. These findings highlight a paradox: ETFs constructed from stocks that have previously surged and drawn retail demand continue to be popular with retail investors after inception, yet ultimately prove costly and deliver poor performance.