scholarly journals The golden target: analyzing the tracking performance of leveraged gold ETFs

2015 ◽  
Vol 32 (3) ◽  
pp. 278-297 ◽  
Author(s):  
Tim Leung ◽  
Brian Ward
Keyword(s):  
Minimization Problem ◽  
Design Methodology ◽  
Detailed Comparison ◽  
Tracking Performance ◽  
Exchange Traded Funds ◽  
Tracking Errors ◽  
Content Type ◽  
Leverage Ratio ◽  
Quadratic Minimization ◽  
Gold Futures

Purpose – The purpose of this study is to understand the tracking errors of leveraged exchange-traded funds (LETFs) on gold and demonstrate improved tracking performance by dynamic portfolios of gold futures. Design/methodology/approach – The author formulates and solves a constrained quadratic minimization problem to construct static replicating portfolios of both leveraged and unleveraged benchmarks in gold; a dynamic constant leveraged portfolio using gold futures is used to track the path of the leveraged gold benchmark. Findings – The results suggest that market-traded LETFs do not track a leveraged position in gold effectively over a long horizon, and the dynamic leveraged futures portfolio achieves lower tracking errors over multiple years. Research limitations/implications – The research informs us that investors should consider alternative portfolios with gold futures, rather than holding a leveraged gold exchange-traded funds to achieve a desired leveraged exposure in spot gold. Originality/value – The main contribution of the study is the use of gold futures to dynamically replicate a gold benchmark with any given leverage ratio and the detailed comparison of the tracking performance of LETFs versus optimal static and dynamic futures portfolios.

Evaluating the tracking performance and tracking error of New Zealand exchange traded funds

2017 ◽  
Vol 29 (3) ◽  
pp. 443-462 ◽  
Author(s):  
Jun Chen ◽  
Yi Chen ◽  
Bart Frijns
Keyword(s):  
New Zealand ◽  
Design Methodology ◽  
Tracking Error ◽  
Cointegration Analysis ◽  
Tracking Performance ◽  
Exchange Traded Funds ◽  
Frequency Tracking ◽  
Content Type ◽  
Regression Methods ◽  
Daily Frequency

Purpose The aim of this study is to examine the tracking performance and tracking error (TE) of New Zealand exchange traded fsunds (ETFs). Design/methodology/approach The authors use regression methods and cointegration analysis to examine tracking performance. Multivariate regressions are used to examine the determinants of TE. Findings At the daily frequency, the authors observe that the ETFs have substantially different exposures to their underlying indexes from what they should be, which is confirmed by cointegration analysis. At the monthly frequency, tracking performance improves but still shows significant differences between the ETF and its underlying index. When the authors examine the TEs of the ETFs, the authors observe that these are substantial and that there is considerable variation in TE. Regression analysis shows that both characteristics of the ETF and the constituents of the index the ETF tracks, as well as the volatility of the underlying benchmark are determinants of the TE of the ETFs. Originality/value This is the first study to examine New Zealand-based ETFs. The findings contribute to understanding the performance of these ETFs and are of relevance to academics, investors and the ETF provider.

Large-cap vs small-cap portfolio performance: new empirical evidence from ETFs

2019 ◽  
Vol 18 (1) ◽  
pp. 71-94
Author(s):  
Gerasimos Rompotis
Keyword(s):  
Design Methodology ◽  
Portfolio Performance ◽  
Exchange Traded Funds ◽  
Investment Strategies ◽  
Time Data ◽  
Content Type ◽  
Risk Characteristics ◽  
The Usa ◽  
First Time ◽  
Practical Implications

PurposeA well-documented pattern in the literature concerns the outperformance of small-cap stocks relative to their larger-cap counterparts. This paper aims to address the “small-cap versus large-cap” issue using for the first time data from the exchange traded funds (ETFs) industry.Design/methodology/approachSeveral raw return and risk-adjusted return metrics are estimated over the period 2012-2016.FindingsResults are partially supportive of the “size effect”. In particular, small-cap ETFs outperform large-cap ETFs in overall raw return terms even though they fail the risk test. However, outperformance is not consistent on an annual basis. When risk-adjusted returns are taken into consideration, small-cap ETFs are inferior to their large-cap counterparts.Research limitations/implicationsThis research only covers the ETF market in the USA. However, given the tremendous growth of ETF markets worldwide, a similar examination of the “small vs large capitalization” issue could be conducted with data from other developed ETF markets in Europe and Asia. In such a case, useful comparisons could be made, so that we could conclude whether the findings of the current study are unique and US-specific or whether they could be generalized across the several international ETF markets.Practical implicationsA possible generalization of the findings would entail that profitable investment strategies could be based on the different performance and risk characteristics of small- and large-cap ETFs.Originality/valueThis is the first study to examine the performance of ETFs investing in large-cap stock indicesvis-à-visthe performance of ETFs tracking indices comprised of small-cap stocks.

FINRA relaxes restrictions on pre-inception performance data

2019 ◽  
Vol 20 (3) ◽  
pp. 6-9
Author(s):  
Richard F. Kerr ◽  
Matthew J. Rogers
Keyword(s):  
Design Methodology ◽  
Performance Data ◽  
Exchange Traded Funds ◽  
Investment Management ◽  
Content Type ◽  
Investment Companies ◽  
Practical Guidance ◽  
Marketing Materials ◽  
Important Shift

Purpose To explain the significance of a recently issued interpretive letter in which FINRA staff agreed to permit the use of pre-inception index performance data by passively managed, registered open-end investment companies. Design/methodology/approach FINRA recently issued an interpretive letter extending previously issued guidance by permitting passively managed open-end registered investment companies including separately-managed series of a business trust to use pre-inception index performance data in Institutional Communications. Findings The 2019 Letter is an important shift in how FINRA staff views PIP data in Institutional Communications by acknowledging that passively managed open-end funds should be treated in a similar manner as passively managed exchange-traded funds. This shift will be a welcome development for FINRA member firms wishing to include PIP data in marketing materials for the passively managed open-end funds they distribute. Originality/value Practical guidance from experienced investment management and broker-dealer lawyers.

ICOs, the next generation of IPOs

2019 ◽  
Vol 46 (6) ◽  
pp. 761-783 ◽  
Author(s):  
Mohammad Hashemi Joo ◽  
Yuka Nishikawa ◽  
Krishnan Dandapani
Keyword(s):  
Initial Public Offering ◽  
Future Development ◽  
Design Methodology ◽  
Detailed Comparison ◽  
Content Type ◽  
Blockchain Technology ◽  
Capital Funding ◽  
The Future ◽  
Public Offering ◽  
Further Development

Purpose The purpose of this paper is to recognize the benefits of the initial coin offering (ICO) as a way of raising funds and to present a detailed comparison between the ICO and the initial public offering to realize the future possibilities that this new funding method holds. Design/methodology/approach It is an exhaustive review of the ICO, the mechanism of crowdfunding, the blockchain technology behind it, benefits and current shortcomings of the ICO, and the potential future development of the ICO as a convenient and efficient way of raising capital. Findings ICOs have brought billions of dollars of funding to startups and projects worldwide in less than two years. Concurrently, many successful ICOs yielded extremely high returns to investors and believers of this new way of funding businesses. Research limitations/implications While the ICO is a revolutionary vehicle for business funding, it has raised concerns among users as well as potential investors about its risk and lack of regulation. The future of this innovative funding method highly depends on further development and placement of appropriate regulatory supervision, better understanding of risk and benefits and attaining the confidence of users. Originality/value This is a review of the advantages and drawbacks of the ICO. If the current fraud, market and cybersecurity risks can be mitigated and standardized regulations are developed, the ICO has a future to become an established way of capital funding or even replace the existing options, regardless of the size and age of companies.

Constructing cointegrated cryptocurrency portfolios for statistical arbitrage

2019 ◽  
Vol 36 (4) ◽  
pp. 581-599 ◽  
Author(s):  
Tim Leung ◽  
Hung Nguyen
Keyword(s):  
Linear Combination ◽  
Statistical Methods ◽  
Design Methodology ◽  
Performance Metrics ◽  
Detailed Comparison ◽  
Trading Strategies ◽  
Content Type ◽  
Trading Systems ◽  
Statistical Arbitrage ◽  
Stop Loss

Purpose This paper aims to present a methodology for constructing cointegrated portfolios consisting of different cryptocurrencies and examines the performance of a number of trading strategies for the cryptocurrency portfolios. Design/methodology/approach The authors apply a series of statistical methods, including the Johansen test and Engle–Granger test, to derive a linear combination of cryptocurrencies that form a mean-reverting portfolio. Trading systems are designed and different trading strategies with stop-loss constraints are tested and compared according to a set of performance metrics. Findings The paper finds cointegrated portfolios involving four cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH) and Litecoin (LTC), and the corresponding trading strategies are shown to be profitable under different configurations. Originality/value The main contributions of the study are the use of multiple altcoins in addition to bitcoin to construct a cointegrated portfolio, and the detailed comparison of the performance of different trading strategies with and without stop-loss constraints.

A novel hybrid electromagnetism‐like algorithm for solving the inverse kinematics of robot

2011 ◽  
Vol 38 (4) ◽  
pp. 429-440 ◽  
Author(s):  
Feng Yin ◽  
Yaonan Wang ◽  
Shuning Wei
Keyword(s):  
Heuristic Algorithm ◽  
Hybrid Method ◽  
Minimization Problem ◽  
Inverse Kinematics ◽  
Design Methodology ◽  
Degrees Of Freedom ◽  
High Dimensional ◽  
Equivalent Problem ◽  
Content Type ◽  
Iteration Number

PurposeThis paper aims to develop a new real‐time effective method for solving the inverse kinematics (IK) problem, especially for those manipulators with high‐dimensional nonlinear kinematic equations.Design/methodology/approachThe paper transforms the IKs problem into a minimization problem. Then, a novel meta‐heuristic algorithm, called the electromagnetism‐like method (EM), is used to solve this equivalent problem. Moreover, in order to further improve the computational efficiency and accuracy of EM, a hybrid method which combines EM with the Davidon‐Fletcher‐Powell (DFP) method is proposed.FindingsThe results showed that EM is a powerful yet easy algorithm for solving the IKs problem of robot manipulators. Its complexity is independent on the characteristics of the kinematic equations involving dimensionality and the degree of nonlinearity. Moreover, EM can be used as an accompanying algorithm for DFP method to get better precision at a lower iteration number.Originality/valueThe method developed in this paper is a generalized approach that is efficient enough to obtain IK solutions independent of robot geometry and the number of degrees of freedom.

Leveraged ETF option strategies

2016 ◽  
Vol 42 (5) ◽  
pp. 438-448 ◽  
Author(s):  
William Trainor ◽  
Richard Gregory
Keyword(s):  
Risk Exposure ◽  
Exchange Traded Funds ◽  
Investment Strategies ◽  
Content Type ◽  
Leverage Ratio ◽  
Option Strategies ◽  
Covered Call ◽  
Equity Indices ◽  
Leveraged Etf ◽  
Leveraged Etfs

Purpose – Leveraged exchange traded funds (ETFs) have become increasingly popular since their introduction in 2006. In recent years, options on leveraged ETFs have been promoted as a means of enhancing returns and reducing risk. The purpose of this paper is to examine the interchangeability of S & P 500 ETF options with leveraged S & P 500 ETF options and to what extent these options allow investors to manage their risk exposure. Design/methodology/approach – With increasing liquidity for these fund’s options, simple option strategies such as covered calls and protective puts can be implemented. This study derives call-call and put-put parity between options on the underlying index and the associated leveraged ETFs. The paper examines comparative measures of return and risk on the underlying indices, along with covered call and protective put positions. Findings – Using the formulations derived, this study shows options on non-leveraged ETFs or on the underlying index can be substituted for leveraged ETF options. Empirical results suggest substituting options on leveraged ETFs with options on the underlying index or index ETF give comparable results, but can differ as the realized leverage ratio over time differs from projected values. Originality/value – This study is the first to the authors’ knowledge that investigates option strategies on leveraged and inverse ETFs of equity indices. It is also the first to derive call-call and put-put parity relations between options on ETFs and related leveraged and inverse ETFs. The results contribute to securities issuance, investment strategies, and option parity relations.

An Evaluation of the Tracking Performance of Exchange Traded Funds (ETFs): The Case of Indian Index ETFs

2021 ◽  
pp. 097226292199648
Author(s):  
Vanita Tripathi ◽  
Aakanksha Sethi
Keyword(s):  
Tracking Performance ◽  
Capital Asset Pricing ◽  
Exchange Traded Funds ◽  
Tracking Errors ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Asset Value ◽  
Tracking Ability ◽  
The Usa

The present study investigates how efficiently India-domiciled exchange traded funds (ETFs) replicate the returns of their underlying indices and analyses the factors that determine the tracking performance. We use a three-pronged approach involving Capital Asset Pricing Model (CAPM) regression, cointegration-Vector Error Correction Model methodology and tracking errors (TEs) to assess tracking efficiency. Random-effects panel regression is employed to evaluate how fund-specific factors influence tracking ability. We find that ETFs carry significantly lower exposure towards their indices than what their objective would suggest. Long-run linkages with benchmarks exist for most ETFs, but the price deviations from the indices are fairly persistent. The TEs for the majority of the funds are large and non-trivial. Bid-ask spreads, price-net asset value deviations, fund’s age and, to some extent, its size are the primary factors that influence tracking performance. ETFs in developed markets such as the USA and Europe have been found to exhibit superior benchmarking abilities. The study is expected to assist investors in developing a more efficient ETF portfolio and to help fund providers improve the quality of their offerings.

The behaviour of US investors during presidential elections

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Carlos Colón De Armas ◽  
Javier Rodriguez ◽  
Herminio Romero
Keyword(s):  
Presidential Election ◽  
Design Methodology ◽  
Presidential Elections ◽  
Investment Decisions ◽  
Exchange Traded Funds ◽  
Trading Activity ◽  
Content Type ◽  
Democratic Candidate ◽  
Republican Candidate ◽  
Trading Behaviour

PurposeThis study examines the influence of the presidential elections on the behaviour of US investors according to the trading activity of two of the most popular investment vehicles: exchange-traded funds and close-ended funds.Design/methodology/approachBased on the fact that investors in these two investment vehicles differ by, at least, two demographic factors that influence investment decisions, age and labour status, inferences are made about the degree of interest and the amount of trading activity that presidential elections provoke.FindingsThe evidence demonstrates that, during the last four US presidential elections, exchange-traded funds' investors trade significantly more than close-ended funds' investors during several event windows centred on the day of an election in which a republican candidate is elected. Close-ended funds' investors are more active during the election of a democratic candidate, although the statistical evidence in that regard is weak. Thus, it appears reasonable to conclude that younger investors who are gainfully employed are induced to trade by a presidential election in which a republican candidate prevails. Apparently, a democratic victory does not provoke the same behaviour.Originality/valueAlthough the relation between politics and economics is not an unexplored topic, it is not clear whether the presidential elections themselves constitute an event that triggers the trading behaviour of investors.

Actively managed ETFs vs actively managed mutual funds

2018 ◽  
Vol 44 (3) ◽  
pp. 303-325 ◽  
Author(s):  
D. Eli Sherrill ◽  
Kate Upton
Keyword(s):  
Mutual Funds ◽  
Design Methodology ◽  
Exchange Traded Funds ◽  
Fixed Income ◽  
Content Type ◽  
Weak Evidence ◽  
Retail Investors ◽  
Tax Clientele ◽  
Clientele Effects ◽  
Clientele Effect

Purpose The purpose of this paper is to study if actively managed exchange-traded funds (AMETFs) and actively managed mutual funds (AMMFs) are complements or substitutes. It also tests if there are tax or liquidity clientele effects. Design/methodology/approach The study investigates the relation between individual AMMF flows and aggregate AMETF flows as well as individual AMETF flows and aggregate AMMF flows. A 2013 tax change is used to analyze if a tax clientele effect exists between the AMETF and AMMF markets. The authors use differences in investor groups for institutional vs retail fund share classes to test for liquidity clientele effects. Findings The authors find that equity and mixed AMETFs and AMMFs are substitutes, although not perfect substitutes. Taxation-related differences between the two products create a clientele effect for fixed income and mixed funds where tax-sensitive investors are more likely to substitute AMETFs for AMMFs surrounding tax increases. There is weak evidence that institutional investors may prefer AMETFs more than retail investors because of their enhanced liquidity. Originality/value This is the first study to investigate the flow relation between AMETFs and AMMFs. The fast-paced growth of the AMETF area coupled with the substitutability between the two products and tax advantages of AMETFs has the capability to gain significant market share from AMMFs in the future.

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