Abstract
This paper studies the information choice of exchange-traded funds (ETF) investors, and its impact on the price efficiency of underlying stocks. First, we show that the learning of stock-specific information can occur at the ETF level.
Our results suggest that ETF investors respond endogenously to changes in the fundamental value of underlying stocks, in line with the rational inattention theory. Second, we provide evidence that ETFs facilitate propagation of idiosyncratic shocks across its constituents.