• This article is partially supported by the National Natural Science Foundation of China (NSFC Project No. 71073132) and the Fundamental Research Funds for the Central Universities in China (Project Nos. 2011221018 and 2010221001). We thank Joseph Callaghan, Seong-Yeon Cho, Dennis Lasser, Murali Jagannathan, Srini Krishnamurthy, Austin Murphy, Mohinder Parkash, Hong Qian, Jay Wellman, and other seminar participants at Binghamton University and Oakland University for their comments. We are especially grateful to Ravi Jagannathan and Kristian Rydqvist for their advice and to an anonymous referee and the editor (Jayant Kale) for their valuable comments. We acknowledge Robert Hutchinson and Jeanie Robertson's help for proofreading an early version of the manuscript. The usual disclaimer applies.


We document that for exchange-traded funds (ETFs), the price falls on average by the dividend amounts on the ex-dividend day, and there are significantly positive abnormal volumes. This is because trading in ETFs entails lower transaction costs and lower risk than trading in equity closed-end funds (CEFs) and individual stocks. Similar results are also found for equity CEFs. However, regression analyses indicate that transaction costs and risk are indeed negligible for ETFs but not for equity CEFs and that risk remains important for a sample of stocks matched based on transaction costs. Overall, the results support the short-term traders hypothesis.