Chinese Business Review (ISSN 1537-1506), Vol.17, No.10, 2018 (original) (raw)
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2016
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Economics and Finance, 2025
his article explores the transformative impact of Exchange-Traded Funds (ETFs) on modern investment strategies, emphasizing their role in democratizing diversification. ETFs are presented as versatile financial instruments that enable both professional and individual investors to access diversified portfolios at relatively low costs. The paper discusses the mechanics of ETF creation, trading, and redemption, along with their advantages, including transparency, liquidity, and cost efficiency. It also addresses potential drawbacks, such as liquidity challenges, tracking errors, and systemic market risks. The evolving role of ETFs in financial markets is contextualized with technological advancements like artificial intelligence and machine learning, which enhance portfolio management capabilities. Additionally, the article examines the implications of passive investing on market efficiency, stock liquidity, and active management, offering a balanced perspective on the future of ETFs in portfolio management.
The performance and trading characteristics of exchange-traded funds
This study examines the performance and trading characteristics of exchange-traded funds (ETFs) in Australia. We investigate the ability of index oriented (classical) ETFs to track underlying equity benchmarks on the Australian Stock Exchange, and provide a comparison of the tracking error volatility between these types of market-traded instruments and equity index funds operated off-market. Our study finds that while index-oriented ETFs closely track their respective benchmarks, these instruments have not been embraced to the same extent as in overseas markets, and relative to off-market index managed funds. Our research provides an important comparison of classical ETFs between Australia and the United States.
Performance and Trading Characteristics of Exchange Traded Funds: Developed vs Emerging Markets
2015
Exchange Traded Funds (ETFs) are one of the most successful financial innovations of the last decades. The main focus of this study is to examine the risk adjusted performance, tracking error and trading characteristics of emerging and developed markets ETF. 43 passively managed equity ETFs have been chosen to cover both markets. The results indicate that the emerging markets are less efficient in terms of index replication and possess higher tracking error compared to the developed market ETF. Conversely, emerging markets provide better risk adjusted performance. Last but not least, it is also found that assets size has positive impacts towards ETFs performance and in contrast, the expense ratio has a negative impact on ETFs performance. To determine the policy matters, investment types and strategy for the two different types of capital market products, this study is quite relevant to the individual investor, institutional investors, policy makers and the regulators.
The effect of ETFs on financial markets: a literature review
Financial Markets and Portfolio Management, 2020
Exchange-traded funds (ETFs) belong to the fastest growing investment products worldwide. Within 15 years, total assets invested in ETFs have twenty-folded, reaching over $3.7 trillion at the end of 2018. Increasing demand for passive investments, coupled with high liquidity and low transaction costs, are key advantages of ETFs compared to their closest substitutes such as traditional index funds. Besides the continuous growth of ETFs, the Flash Crash in 2010 triggered detailed investigations by regulators on how ETFs affect the financial market. This literature review provides a broad overview of recent academic studies analyzing the effect of ETFs on liquidity, price discovery, volatility, and comovement of the underlying securities.
Exchange-Traded Funds Investing in the European Emerging Markets
Journal of Eastern European and Central Asian Research (JEECAR), 2022
We examine ETFs investing in the equity of emerging European countries. Our sample contains 364 ETFs in developed Europe and 11 emerging European ETFs from 2005 to 2019. Compared to developed Europe’s ETFs, the emerging European equity ETFs are significantly smaller and younger with significantly higher fees. The low correlation of their returns with developed countries and lack of flow sensitivity to the US market volatility suggests that they may be underutilized means of international diversification by investors from developed countries.
An analytical performance comparison of exchange-traded funds with index funds: 2002–2010
2011
Exchange-traded Funds (ETFs) have been gaining increasing popularity in the investment community, as evidenced by their high growth both in the number of ETFs created and their net assets since 2000. As ETFs are in nature similar to index mutual funds, in this article we examine whether this growing demand for ETFs can be explained through their outperformance as compared with index mutual funds. We consider the population of all ETFs with inception dates before 2002 and then for each ETF found all the passive index mutual funds that had the same investment style as the selected ETF and had an inception date before 2002. This led to a sample of 230 paired matches for all the styles. Within each investment style we matched every ETF with all the passive index funds in that investment style and compared the performances of the matched pairs in terms of Sharpe Ratios and risk-adjusted buy and hold total returns for the period 2002–2010. We then applied the Wilcoxon signed rank test to ...
ETFs in European Emerging Markets: Performance, Risk and Sustainability
American Journal of Economics and Business Administration, 2022
Over the past few decades, Exchange-Traded Funds (ETFs) have become one of the most innovative financial instruments traded in financial markets. The aim is to offer an overview of the ETF market in Emerging Europe through a study on performance, risks and sustainability. The research examines the costs, the performance of the fund over calendar year periods (annual return), the volatility measurements (standard deviation and Sharpe ratio), the components of modern portfolio theory (R-squared, alpha and beta) and the sustainability measurements (Morningstar Portfolio Corporate Sustainability Score and the Portfolio Carbon Risk Score). It is developed through the collecting and re-elaborating of a data set of 46 ETFs in emerging Europe published on www.morningstar.co.uk using a screener tool. Data are collected on October 7 th , 2023. The study uses an age-cohort analysis which is a method to analyze and evaluate changes in the behavior of a group with a common demographic feature in a given period of time. In particular, the analysis puts in evidence the value of some parameters of the cohort of funds in the period 2005-2022. Results of the study show that ETFs continue to have a positive performance, resisting the negative economic and social context and the investors' attention to sustainable ETFs, especially in recent years, has increased. The findings will serve as an important point of reference for investment choices for building a profitable portfolio for the investor. This study contributes to the current understanding of how ETFs are developing in emerging Europe and how investments must always be oriented towards ethical and sustainability principles.
Future business journal, 2024
Passive investments such as exchange-traded funds (ETFs) provide an opportunity to invest in indexes, asset classes, and sectors with low maintenance costs and high transparency. Today ETFs dominate the world, with nearly 50% of the investment in the USA coming through ETFs. Numerous studies on specific aspects on ETFs have been done earlier; however, considering the scarcity of thorough summaries in the existing body of literature, this bibliometric and systematic review aims to adopt a methodical approach with the goal of delivering qualitative and quantitative understanding of ETFs, while highlighting general research trends. The authors analyzed 2058 articles associated with ETFs from the Scopus database during the last 50 years, i.e., from 1973 till date. The search was initially conducted using title, keyword, and abstract, yielding 2058 articles, which were narrowed to only include research papers and review papers, resulting in a final count of 958 items. The most important authors, highest cited articles, prominent journals, important themes, and associated countries have been identified using bibliometric research. The numerical and visual representations of the analysis show that ETFs are a widely studied research area, and the enormous rise in publications in 2020, 2021, and 2022 demonstrates that researchers are quite interested in the topic. According to affiliation statistics, most research is focused in the USA together with other developed nations, opening new options for the research on ETFs in relation to developing economies. The current analysis reconciles numerous exchange-traded fund studies associated with volatility, liquidity, risk-return trade-off, and tracking errors and identifies possible research gaps. Some of the emerging topics that evolved in passive investments include the use of machine learning, AI, and the emergence of ETFs associated with ESG and sustainability. This research will help lawmakers, scholars, and regulators understand the core principles of ETFs and identify areas that deserve additional investigation.
Exchange-Traded Funds vs. Index Funds
2008
This article investigates the performance and risk characteristics of ETFs and index funds. The findings reveal that ETFs and index funds deliver similar average daily returns while ETFs are slightly more risky than index funds. The average beta of ETFs is statistically different from unity reflecting the non-full replication strategies applied by ETFs while the average beta of index funds does not differ statistically from unity. As a result, the average tracking error of ETFs is superior to the average tracking error of index funds. In cross-sectional regression analysis we find that the tracking error of both ETFs and index funds is positively related to expense ratio and risk. Overall, the results indicate that the trading convenience and the unique characteristics related to ETFs do not result in better performance in relation to the index funds9 performance.