Choking the Recovery

By Robert E. Litan on March 6, 2012

Why New Growth Companies Aren’t Going Public And Unrecognized Risks Of Future Market Disruptions

Harold Bradley and Robert Litan

We show here that ETFs are radically changing the markets, to the point where they, and not the trading of the underlying securities, are effectively setting the prices of stocks of smaller capitalization companies, or the potential new growth companies of the future. In the process, ETFs that once were an important low-cost way for investors to assemble diversified stock holdings are now undermining the traditional price discovery role of exchanges and, in turn, when combined with the high Sarbanes Oxley compliance costs for small companies are discouraging new companies from wanting tobe listed on U.S. exchanges.

etf_study_11-8-10