In recent years, the financial service industry demonstrated substantial growth of Exchange Traded Funds (ETFs). Apart from offering access to new and more specific investment opportunities, many ETFs enter direct competition with conventional, already existing Mutual Index Funds. With 22,1% growth of assets over the past 5 years, the European market by now accounts for 19% of the global ETF market, while at the same time we observe a decline of cash flows to Mutual Index Funds. Given the recent development, index investors are likely to face a choice between ETFs and Mutual Index Funds offering the same service. The purpose of this study is to analyze those two similar investment instruments towards the quality of achieving their objective, which is to deliver a performance as close as possible to the respective benchmarks'. The analysis will be performed for the European market, i.e. we include only Index Funds that track European indices. This study is guided by objectivism and positivism as ontological and epistemological positions. We conduct a deductive research by reviewing and testing previous findings through the formulation of hypotheses that serve our purpose. For our analysis we gather quantitative data in the form of daily prices for 21 ETFs and 22 Mutual Index Funds, tracking 9 European indices. We further use a time frame of 7 years (2006-2012), which we analyze as a whole as well as divided into sub-periods as determined by different states of the European market. As a basis for the analysis we calculate return differences and different measures of tracking risk. Our results show that on average ETFs as well as Mutual Index Funds sufficiently replicate index performance with approximately the same level of tracking risk for both instruments. Furthermore, we see no significant impact of expected returns or index volatility on return difference. However, through examination of fees and tracking errors during recent economic turmoils, we show that ETFs first bear lower directly attributed costs and second are less affected by down markets than Mutual Funds.

Investors have historically demanded a return premium for taking on the risk of illiquidity both in terms of characteristic and systematic liquidity risk. Recent research have presented results suggesting that the liquidity premium is diminishing. The increasing popularity of passive investments such as Exchange Traded Funds (ETFs) have been proposed as a driving force for the declining trend. Despite the popularity of ETFs, there is limited research how they impact the financial markets. The purpose of this thesis is to investigate how the liquidity premium has developed in the United States between 1997 and 2016 and to explore if developments in the liquidity premium can be linked to the capital inflow to the United States ETF market. The thesis uses measures of stocks’ spreads and order book depths as proxies for the characteristic and systematic liquidities. The proxies are used to test if liquidity has influenced stock returns over 1-year, 5-years and the entire 20-year period. The empirical results obtained through Fama-MacBeth regressions show that the liquidity premium can fluctuate by both sign and magnitude year by year. The characteristic risk premium is negative and significant for the entire 20-year period and the 1-year regressions suggests a clear negative trend. The systematic liquidity premium on the other hand is positive and significant for the entire 20-year period but the 1-year regressions do not show a clear trend. The empirical results show no statistical significance that ETFs influence the liquidity premium. However, the graphical interpretation of the 1-year regressions suggests that the characteristic liquidity premium is negatively correlated with the growth of ETFs. The negative characteristic premium implies that investors are not being adequately compensated for the risk of illiquidity and should therefore avoid a liquidity-based investing strategy which has generated excess return in the past.

Submitted by Cristiane Shirayama (cristiane.shirayama@fgv.br) on 2011-08-20T19:16:46Z No. of bitstreams: 1 DISSERT_IGINO ZUCCHI DE MATTO.pdf: 894398 bytes, checksum: 0d19d1d1f176cfa48f33320690add5cf (MD5) / Approved for entry into archive by Gisele Isaura Hannickel (gisele.hannickel@fgv.br) on 2011-08-22T12:09:40Z (GMT) No. of bitstreams: 1 DISSERT_IGINO ZUCCHI DE MATTO.pdf: 894398 bytes, checksum: 0d19d1d1f176cfa48f33320690add5cf (MD5) / Approved for entry into archive by Gisele Isaura Hannickel (gisele.hannickel@fgv.br) on 2011-08-22T12:15:14Z (GMT) No. of bitstreams: 1 DISSERT_IGINO ZUCCHI DE MATTO.pdf: 894398 bytes, checksum: 0d19d1d1f176cfa48f33320690add5cf (MD5) / Made available in DSpace on 2011-08-22T12:22:43Z (GMT). No. of bitstreams: 1 DISSERT_IGINO ZUCCHI DE MATTO.pdf: 894398 bytes, checksum: 0d19d1d1f176cfa48f33320690add5cf (MD5) Previous issue date: 2011-07-06 / With the ETF going to be used for more sophisticated investors and with the possibility to go on to win representation, either for a passive strategy or strategy combined with more specialized and higher risk assets, this paper seeks to explain and justify the coexistence of these vehicles, which has similar goals, but with different structures. With this objective, the study seeks to analyze the behavior and the effectiveness of passive investment products-funds classified as ETF´s (acronym for Exchange-Traded Fund) and Passive mutual funds in the Brazilian market. Study seeks to benchmark, demonstrating differentiations of products from a technical point of view, validating the behavior of managers and product for final investors. Despite recent academic literature, the study seeks to elucidate potential opportunities and relevant aspects to investors. The objective doesn't include make comparison between active funds and ETF´s in Brazil, only display the figures - returns obtained - in recent periods. Concluding with numeric examples, ETF becomes an attractive to investors as harnessing their potential, the fact this with relevant developments in the markets of Europe and United States, mainly. / Com o ETF passando a ser utilizado por investidores mais sofisticados e com a possibilidade de passar a ganhar representatividade, seja para uma estratégia passiva ou para uma estratégia combinada com ativos de maior risco e mais especializados, este paper busca explicar e justificar a coexistência destes veículos, que tem objetivos semelhantes, mas com estruturas diferentes. Com este objetivo, o estudo busca analisar o comportamento e a eficácia dos produtos passivos de investimentos - fundos classificados como ETF´s (sigla para Exchange-Traded Fund) e Fundos Mútuos Passivos no mercado brasileiro. Buscamos avaliar comparativamente, demonstrando diferenciações dos produtos do ponto de vista técnico, validando o comportamento dos gestores em relação a gestão passiva e de produto para os investidores finais. Apesar de literatura acadêmica recente sobre a comparatividade, o estudo busca elucidar possíveis oportunidades e aspectos relevantes para os investidores. Não é objetivo deste trabalho fazer relação comparativa entre produtos ativos de ações e os ETF´s no Brasil, apenas detalharemos o retorno obtido nos últimos períodos. O trabalho demonstra, com exemplos númericos, que o ETF torna-se um instrumento atrativo aos investidores na medida do aproveitamento de suas potencialidades, fato este com evolução relevante nos mercados da Europa e Estados Unidos, principalmente.

>Magister Scientiae - MSc / Motivated by the growing attraction of the mutual fund industries across the world, this research seeks to explore the economic benefits contributed by the South African equity unit trust managers over the period from 1 January 2002 to 2 September 2012. The performance is examined over two sub-periods and the overall examination period, where the first sub-period captures the performance of the unit trusts before the 2007/2008 global financial crisis and the second sub-period captures the devastation in performance of the unit trusts after the crisis. Active fund managers are usually presumed to possess superior abilities in asset allocation, security selection and market timing that assist them to consistently generate abnormal returns on a risk-adjusted basis. This research attempts to test this claim by making a distinction in performance attribution between returns generated as a result of managerial skills and those generated as a result of random chance. The study emerges by first examining the risk-adjusted performance of the South African unit trust managers against the performance of a broad market index proxied by FTSE/JSE All Share Index (ALSI). Six different risk-adjusted performance measures are employed for this purpose. Regardless of the different applications of risk parameters employed by each performance measure, the results reveal that on average, most of the South African unit trust managers do not outperform the market on a consistent basis. The majority of the unit trust managers show good performance during the first sub-period, with subsequent inferiority in performance during the second sub-period. The study further examines the performance of the South African unit trust managers relative to the pre-specified sector benchmarks constructed by following a set of performance attribution techniques proposed by Yu (2008) and Hsieh (2010). The objective of this test is to determine whether the equity unit trust managers are able to create value through their security selection skill in addition to their asset allocation decisions. Consistent with international evidence, the results reveal that returns generated by South African unit trusts are driven mainly by asset allocation activities and stock picking of asset managers do not add significant value. In addition, test results also indicate that South African equity unit trust managers are not good at managing risk as the majority of the unit trusts exhibit higher standard deviation compared to their benchmarks. Furthermore, the study examines the economic value contribution of the South African equity unit trust managers through their market timing activities. In particular, the study attempts to determine whether or not unit trust managers possess the ability to correctly anticipate future market movements. To achieve this, two market timing performance models developed by Treynor-Mazuy (1966) and Henrikson-Merton (1981) are employed. The results reveal that, regardless of the changes in market conditions, South African equity unit trust mangers delivered significantly inferior timing performance in both sub-periods and the overall examination periods that actually destroyed fund values. The paper concludes by stating that investors are better off by investing in cost-effective passive investment vehicles such as exchange traded funds (ETF's).

This diploma thesis focuses on the design of three portfolio variants for a fund of qualified investors operating in the Czech Republic, which focuses on investing in shares of Exchange Traded Funds investing in precious metals.

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.

We estimate the proportions of skilled, unskilled, and zero-alpha funds preva- lent in the mutual Funds population easily accessible by Czech Investors. We estimate alphas from a regression against a concise set of Exchange Traded Funds and control for luck using False Discovery rate. We design a straight- forward ETF selection algorithm and find that if investors adhere to simple diversification rules, they can outperform a large proportion of mutual funds. We further document a negative relationship between the performance of mu- tual funds and its Total Expense ratio, suggesting that portfolio managers are on average unable to compensate their costs with better performance. JEL Classification C12, C20, G12, G23 Keywords Mutual Funds, Exchange Traded Funds, Perfor- mance evaluation Title Do mutual funds offered in Czech Republic add value to investors?

<p>This dissertation comprises two essays on over-the-counter (OTC) markets, covering both the primary and secondary markets for municipal bonds.</p> <p>In the first chapter, I explore a novel channel through which exchange-traded funds (ETFs) improve pre-trade price transparency and thereby retail investors' bargaining power in OTC markets. ETFs are required to daily disclose their full holdings, often along with their constituents’ end-of-day prices, which are good timely references for investors to negotiate with broker-dealers, particularly when the securities have not traded recently. I find that ETF-held bonds have significantly lower retail markups than those of bonds not held by ETFs. This effect cannot be explained by selection or ETFs' own trading activity but is driven by the daily disclosures by ETFs holding the bonds. During 2010--2021, retail investors saved over $200 million when trading ETF-held bonds. There is also a spillover effect to the primary market---when municipalities have outstanding ETF-held bonds, their new issues have lower yields and smaller price dispersion.</p> <p>In the second chapter, I both theoretically and empirically document a non-monotonic relation between local municipal bond mutual funds, or informed investors, and underpricing in the municipal bond market. Empirically speaking, offering yields are higher in states that have open-end municipal bond funds, and with larger aggregate fund size. However, holding local fund size constant, yields decrease in the number of funds. Such relations hold when local funds' primary market participation is instrumented with the similarities in characteristics of new issues and existing bonds in their portfolios. I further confirm my empirical findings with a security underpricing model that incorporates the imperfect signals available to informed investors. Despite facing higher borrowing costs, issuers benefit from local funds' certification resulting in both institutional and retail investors' higher demand in the primary market.</p>

Exchange Traded Funds are growing in popularity and volume, however academic literature related to their performance is limited. This study analyzes how well the CORN, WEAT, SOYB, USO, and UGA commodity ETFs track their respective futures assets during the period of January 2012 to October 2017. Tracking error in this study is evaluated through 4 approaches to measure error, bias, systematic risk, and error magnitude. Additionally, a mispricing analysis is conducted as an alternative form of error measurement Results indicate that tracking error is small on average, however CORN shows average excess returns significantly smaller than zero. The CORN ETF is returning a smaller positive value compared to the asset basket when asset basket returns are greater than zero and a larger negative value compared to the asset basket when asset basket returns are less than zero. The CORN, WEAT, USO, and UGA ETFs are found to move less aggressively than the respective asset baskets they track. While errors were small on average, large tracking errors were present across ETFs. The size of errors were found to be impacted by large price moves, as well as seasonality on a monthly and yearly level. USDA reports impacted the size of errors for CORN, WEAT and SOYB while EIA reports had no impact on error size. The mispricing analysis concluded that CORN and SOYB trade at a discount to Net Asset Value on average while WEAT trades at a premium. / Master of Science

Made available in DSpace on 2015-12-03T18:33:06Z (GMT). No. of bitstreams: 1 Jose_Raymundo_de_Faria_Junior.pdf: 1267452 bytes, checksum: 6a478b16fd990211249d441f2100f6b4 (MD5) Previous issue date: 2014-02-18 / The objective of this research is to propose for high income Brazilian investors a model of dynamic allocation with international diversification that uses ETFs and the PMI manufacturing index. ETFs were selected from twelve countries, including the ETF equities in Brazil, EWZ. The portfolios were created with and without the EWZ and two procedures were adopted to weight the assets: (1) maximization of the Sharpe ratio and (2) allocation based on the proportion of GDP. An alternative method of selection of assets was presented, using the PMI manufacturing index as a decision filter for the allocation of the resources. The PMI is usually published on the first business day of each month, is researched in the major countries and is one of the first, if not the first, leading indicator of the economic cycle. When the PMI signaled economic growth, the portfolio consisted of a higher proportion of equities. To evaluate the performance of the proposed portfolio, it was compared to other three global portfolios that followed classical allocation strategies, and one of these was considered a benchmark. The proposed portfolio was also compared to a benchmark created exclusively with brazilian assets. The result suggests that the use of PMI as a decision filter in an active and internationally diversified portfolio using only foreign ETFs and weighted according to the techniques of Modern Portfolio Theory presented higher total return and Generalized Sharpe Ratio than the international and brazilian benchmarks. This result suggests that Brazilian and foreign investors and managers who adopt active management of their portfolios should include PMI as one of the indicators to be observed in the allocation strategy / O objetivo desta pesquisa ?? propor para os investidores brasileiros de alta renda um modelo de aloca????o din??mica com diversifica????o internacional que utiliza ETFs e o ??ndice PMI da manufatura. Foram selecionados ETFs de doze pa??ses, incluindo o ETF de renda vari??vel do Brasil, o EWZ. Foram criadas carteiras com e sem o EWZ e adotados dois procedimentos para ponderar os ativos: (1) maximiza????o do ??ndice de Sharpe e (2) aloca????o com base na propor????o do PIB. Foi apresentado um m??todo alternativo de sele????o de ativos, utilizando o ??ndice PMI da manufatura como filtro de decis??o para a aloca????o dos recursos. O PMI ?? divulgado, em geral, no primeiro dia ??til de cada m??s, ?? pesquisado nos principais pa??ses e ?? um dos primeiros, se n??o o primeiro, indicador antecedente do ciclo econ??mico. Quando o PMI sinalizou crescimento econ??mico, a carteira foi composta por maior propor????o de ativos de renda vari??vel. Para avalia????o da performance da carteira proposta, a mesma foi comparada a outras tr??s carteiras globais que seguiram estrat??gias cl??ssicas de aloca????o, sendo que uma destas foi considerada benchmark. A carteira proposta tamb??m foi comparada a um benchmark criado com ativos exclusivamente brasileiros. O resultado obtido sugere que o uso do PMI como filtro de decis??o em uma carteira ativa e diversificada internacionalmente usando somente ETFs estrangeiros e ponderados de acordo com as t??cnicas da Moderna Teoria de Portf??lio apresentou retorno total e ??ndice de Sharpe generalizado superiores ao benchmark internacional e ao benchmark brasileiro. Este resultado sugere que os investidores e os gestores brasileiros e estrangeiros que adotam a gest??o ativa de seus portf??lios poderiam incluir o PMI como um dos indicadores a serem observados na estrat??gia de aloca????o