Performance and Trading Characteristics of Exchange Traded Funds: Developed vs Emerging Markets (original) (raw)
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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.
European Financial Management Association 2007 …, 2007
The aim of this paper is to investigate the performance and persistence of 20 iShares MSCI country-specific exchange-traded funds (ETFs) in comparison with S&P 500 index over the period July 2001 to June 2006. There are several studies analysing mutual funds performance in past years, but very little is known about ETFs. In our analysis the Sharpe, Treynor and Sortino ratios are used as risk-adjusted performance measures. To evaluate performance persistence and therefore if there is any relationship among past performance and future performance, we apply to the Spearman Rank Correlation Coefficient and the Winner-loser Contingency Table. The main findings are at two levels. First, ETFs can beat the U.S. market index based on risk-adjusted performance measures. Second, there is evidence of ETFs performance persistence based on annual return. JEL Classification: G11, G15
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With various studies done on the tracking abilities of exchange traded funds for the European and U.S. market, we observed that similar empirical studies are scarce for the Asian Pacific region. This work serves as to fill the gap in research and to provide the reader with an analysis on how well the different ETF replication methods track their indices on the Asian market. Using a sample of 389 Asian equity and fixed income ETFs tracking a total of 270 indices we calculate for each fund three different tracking errors based on different methodologies using closing prices. We will then use an ANOVA model to compare the differences in tracking errors of full & derivative replication, full & optimized replication, and derivative & optimized replication. In the last step we conduct a simple regression to identify the determinants of tracking errors. Our results indicate that optimized funds are the best at replicating their indices mostly due to the liberty of choice to exclude dividend paying stocks and the reduction of rebalancing costs due to a sampling of the index. While not statistically significant, the additional returns generated through securities lending also enhance ETF tracking performances of physical ETFs in comparison to synthetic funds. JEL Classification: G11, G15, G23
An analytical performance comparison of exchange-traded funds with index funds: 2002–2010
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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 ...
Exchange-Traded Funds vs. Index Funds
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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.
An analytical performance comparison of exchanged traded funds with index funds: 2002-2010
Eprint Arxiv 1111 0389, 2011
Exchange Traded Funds (ETFs) have been gaining increasing popularity in the investment community as is evidenced by the high growth both in the number of ETFs and their net assets since 2000. As ETFs are in nature similar to index mutual funds, in this paper we examined if this growing demand for ETFs can be explained through their outperformance as compared to index mutual funds. We considered the population of all ETFs with inception dates prior to 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 inception date prior to 2002. 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 Sharp Ratios and risk adjusted buy and hold total returns for the period 2002-2010. We then applied the Wilcoxon signed rank test to examine if ETFs had better performances than index mutual funds during the sample period. Out of the 230 paired matches of all the styles, ETFs outperformed index mutual funds in 134 of the times in terms of Sharpe Ratio, however, the test of the hypothesis showed no statistically significant difference between ETFs and index funds performances in terms of Sharpe ratio. Out of the 230 paired matches of all the styles, ETFs outperformed index mutual funds in 125 of the times in terms of risk adjusted buy and hold total return, however, the test of hypothesis showed no statistically significant difference between ETFs and index funds performances in terms of risk adjusted buy and hold total return. These findings indicate there is statistically no significant difference between ETFs and passive index mutual funds performances at the fund level and investors' choice between the two is related to product characteristics and tax advantages.
Tracking Ability and Pricing Efficiency of Exchange Traded Funds: Evidence from Borsa Istanbul
Business and Economics Research Journal, 2015
The purpose of this study is to evaluate the performance and pricing efficiency of the exchange-traded funds (ETFs) operating in the Turkish Capital Markets. In this paper, we examine the tracking errors and pricing efficiencies of 16 ETFs during the period 2005-2013. This is the first paper that makes an investigation with covering all ETFs in Turkish Capital Markets. Using daily data, we find out that Turkish ETFs underperform their underlying indices. We use three different methods (arithmetic mean, absolute mean and quadratic tracking error) to measure the tracking errors and find that these errors are significantly different from zero. The pricing efficiencies of ETFs are computed using four different methods: premiums and discounts calculated in Turkish Liras (TL) and percentage and absolute values of these calculations. As a result of our analysis, we find that Turkish ETFs are priced closely to their net asset values and there exists no arbitrage opportunities in this context.