The Performance of Exchange Traded Funds and Mutual Funds

Abstract

In this study, we examine the performance of 61 exchange-traded funds (ETFs) and 61 mutual funds from January 1st, 2005 to December 31st, 2016. The sample is divided into large-cap equity, mid-cap equity, small-cap equity and fixed-income funds. We find that ETFs have a lower tracking error relative to their bench mark compared to mutual funds. We find the average bid-ask spread on ETFs is 1.73%. ETFs that invest in mid-cap stocks and small-cap stocks have higher bid-ask spreads. We find that ETFs have a statistically higher annul return and lower annual fees.