We report on an experiment that shows how the demand for ETF index products affects the prices and trading volume of assets included or excluded from the ETF index. We compare an environment where the ETF index includes all assets against an environment where one asset is excluded from the index. We find that (i) traders place significant value on the ETF asset; (ii) there is evidence of a substantial index premium for included assets; and (iii) the index premium persists even when short-selling is permitted. The price increase of the ETF share and the underlying assets between treatments suggests that ETF products can distort the efficiency of markets.

This paper is the first to non-experimentally establish a causal relationship between households’ mortality beliefs and subsequent saving and consumption decisions. Motivated by prior literature on the effect of personal experiences on individuals’ expectation formation, I exploit the death of a close friend as an exogenous shock to the salience of mortality of a household. Using data from a large household panel, I find that the death of a close friend induces a significant reduction in saving rate of 1.1 percentage points that grows to 1.7 percentage points over the following 6 years. I show that the incorporation of personal experiences in mortality beliefs can be explained by the canonical consumption life-cycle model augmented by the experience-based learning model. The saving response to the shock strongly depends on households’ age, emotional involvement, risk aversion, and decays over time. Overall, this paper provides novel insights into whether and how mortality beliefs are incorporated into households’ financial planning.