Complements or substitutes? The effect of ETFs on other managed funds

We examine the complementary and substitute effects of exchange-traded funds (ETFs) and two other investment vehicles: mutual funds (MFs) and closed-end funds (CEFs). Focusing on the capital flow into investment vehicles, we find a complementary effect between ETFs and MFs, and substitution effect between ETFs and CEFs. The complementarity and substitution effect remains robust when focusing on subsamples with different market conditions and fund management styles. We present further evidence that past inflows of the same investment vehicle are significantly correlated with current inflows. These findings have implications to both investors and regulators in understanding the interdependence of investment vehicles.