Thesis (MBA)--Stellenbosch University, 2015. / ENGLISH ABSTRACT: Facilities are available to individual investors to enable them to invest directly in a multitude of investments without making use of investment brokers or financial advisors. Although this facility offers the benefit of reduced administration and management fees, it also puts the investor in a position where he is responsible for making his own investment decisions. Since Markowitz’s publication fifty years ago, it has been known that diversification is necessary in order to reduce the investor’s exposure to any unsystematic investment risk while still obtaining an acceptable return. Studies have shown that human behaviour has an impact on investment decisions and that human nature skews the individual’s perception of diversification and risk and the reality thereof. For this reason, the individual investor is better off making use of quantitative methods in order to ensure a properly diversified portfolio. Exchange traded products are passive, index tracking investments that trade on stock exchanges and pose benefits to individual investors owing to their low administrative costs and inherent levels of diversification. Individual investors are able to purchase exchange traded products such as exchange traded funds (ETFs), exchange traded notes (ETNs) and index tracking unit trusts through various means, including brokerage firms and online trading platforms. These platforms offer little advice to the individual investor on how to select the most suitable investment products and how each product will affect the risk profile of an investor’s portfolio. The purpose of this research assignment was to develop a portfolio optimisation tool that would help the investor obtain the optimal return for his desired level of risk, thereby ensuring efficient diversification. An optimisation model was developed by using performance data from 2009 to 2013 and the resultant optimised portfolio’s performance was evaluated for 2014. It was found that optimisation rendered acceptable results, provided that the covariances between the various ETFs showed equivalence year on year. This requirement limited the number of ETFs that could be included in the model. Improvements to the model were recommended, based on the results of similar research in the field of portfolio optimisation. Further research is proposed that would utilise other optimisation methods, other sources of data and comparisons that are more detailed.

Thesis (Ph.D.)--University of Hawaii at Manoa, 2007. / Adviser: S. Ghon Rhee. Includes bibliographical references.

Thesis (M.S.F.)--University of Nevada, Reno, 2007. / "December, 2007." Includes bibliographical references (leaves 55-60). Online version available on the World Wide Web.

Thesis advisor: Jeffrey Pontiff / My thesis contains four essays on the pricing of financial assets and the role of non-professional investors. The first two essays describe the legal framework governing Exchange-Traded Funds (ETFs) and the liquidity transformation functions of ETFs. The third essay examines how trading by nine different types of market participants are related to characteristics that have previously documented to predict the cross-section of equity returns. The fourth and final essay examines whether and how orders originating from retail brokerages respond to analyst recommendations. In my first essay, I describe the legal framework that governs ETFs and theoretical benefits of the ETF security design relative to two other popular investment management security structures: open-end and close-end mutual funds. To do so, I briefly describe the history of the modern investment management industry. I describe the role of Authorized Participants (APs), the main security design innovation of ETFs, and highlight the key theoretical differences between the three classes of funds. Lastly, I describe SEC rulemaking that governs the behavior of ETF Managers and their APs. In the second essay, I document a hidden but substantial cost associated with the liquidity transformation that corporate bond exchange-traded funds (ETFs) provide. When creating new shares, authorized participants (APs) deliver a subset of the portfolio of bonds that underlie a corporate bond ETF. This subset contains bonds that realize low future returns, reducing ETF performance by 48 basis points per annum. This loss in performance cannot be attributed to forgone compensation for risk or illiquidity, but instead results from APs utilizing information regarding future changes in net asset values to strategically deliver bonds when those bonds are expected to realize poor performance in the near future. My third essay is joint work with Jeff Pontiff and David McLean. We provide the most comprehensive study of market participation to date. We assess the informativeness of 9 different participants’ trades, and how each participant’s trades relate to 130 different variables that together reflect the cross-section of expected stock returns. Firms and short sellers tend to be the smart money—both sell stocks with low expected returns, and their trades predict returns in the intended direction. Firms, however, also seem to possess private information, while short sellers do not. Retail investors buy (sell) stocks with low (high) expected returns and their trades predict returns opposite to the intended direction. All 6 types of institutional investors are weighted towards stocks with low expected returns, but none of their trades robustly predict returns. My fourth essay is joint work with Jeff Pontiff and David McLean. We ask whether retail investors are responsive to analysts’ revisions. We consider revisions in recommendations, price targets, and EPS forecasts, all of which predict returns. Revisions in recommendations and price targets portend greater retail trading in the direction of the revision. The effects are stronger for All-Star Analysts’ revisions, and retail investors also respond to All-Star’s revisions in EPS forecasts. Retail investors trade in anticipation of revisions in price targets and recommendations, consistent with analysts or brokers “tipping” some retail investors. Retail trades earn higher returns when aligned with analysts’ revision. The results show that retail investors are one channel through which analysts’ information gets into prices. Our findings also support the idea that spikes in retail trading reflect informed trading, some of which is informed by analysts. / Thesis (PhD) — Boston College, 2022. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

This paper examines the effect capital flows from the introduction of exchange traded funds (ETFs) have on emerging markets. Recent years have seen more capital transfer into emerging markets, and the advantages ETFs offer have helped expedite the process. Increased liquidity and a large diverse collection of holdings help manage the high degree of volatility inherent to these markets. The holdings of the ETFs are tested for returns above their market average for the period surrounding the initial trading date of the fund. Positive effects were seen on individual stocks, but overall the findings suggest no significant mean excess return exists for the period related to the creation of an ETF.

This dissertation investigates two fundamental questions related to how well exchange-traded funds that hold portfolios of fixed-income assets (bond ETFs) proxy for their underlying portfolios. The first question involves price/net-asset-value (NAV) mean-reversion asymmetries and the effectiveness of the arbitrage mechanism of bond ETFs. Methodologically, to answer the first question I focus on a time-series analysis. The second question involves the degree to which average returns of bond ETF shares respond to changes in factors that have been found to drive average returns of bond portfolios. To answer this question I shift the focus of the analysis to a cross-section asset pricing test. In other words, do bond ETF share prices track the value of their underlying assets, and are they priced by investors like bonds in the cross-section? The first essay concludes that bond ETF shares exhibit mean-reversion asymmetries when price and NAV diverge, along persistent small premiums. These premiums appear to reflect the added value that bond ETFs bring to the fixed-income asset market through smaller trading increments, greater liquidity, and the ability to buy on margin and sell short. The second essay concludes that market, bond-specific, and firm-specific risk factors can help to explain the variation in U.S. bond ETF average returns, but only size seems to be priced in the cross-section of expected returns. This is not surprising as the sample used in the asset pricing tests is limited to the period 2007-2010, which corresponds to the "great recession", and size has been interpreted in the asset pricing literature as a state variable that proxies for financial distress and is highly dependent on the phase of the real business cycle. / The two essays together suggest that bond ETFs can be used in trading strategies based on taking long and short positions in fixed-income assets, especially when trading in portfolios of fixed-income assets directly is not feasible. / by Charles W. Evans. / Thesis (Ph.D.)--Florida Atlantic University, 2011. / Includes bibliography. / Electronic reproduction. Boca Raton, Fla., 2011. Mode of access: World Wide Web.

This paper describes our work pricing options in the binomial model on leveraged exchange traded funds (ETFs) with three different approaches. A leveraged exchange traded fund attempts to achieve a similar daily return as the index it follows but at a specified positive or negative multiple of the return of the index. We price options on these funds using the leveraged multiple, predetermined by the leveraged ETF, of the volatility of the index. The initial approach is a basic time step approach followed by the standard Cox, Ross, and Rubinstein method. The final approach follows a different format which we will call the Trigeorgis pricing model. We demonstrate the difficulties in pricing these options based off the dynamics of the indices the ETFs follow.

This thesis makes new observations of market phenomena for various commodities and trading strategies centered around these observations. In particular, our results imply that many aspects of the commodities markets, from delivery markets to producers and consumer derivative based ETFs can be modeled eectively using nancial engineering techniques. Chapter 2 examines what drives the returns of gold miner stocks and ETFs. Inspired by our real options model, we construct a method to dynamically replicate gold miner stocks using two factors: a spot gold ETF and a market equity portfolio. We find that our real options approach can explain a significant portion of the drivers of firm implied gold leverage. Chapter 3 studies commodity exchange-traded funds (ETFs). From empirical data, we find that many commodity leveraged ETFs underperform significantly against our constructed dynamic benchmark, and we quantify such a discrepancy via the novel idea of realized effective fee. Finally, we consider a number of trading strategies and examine their performance by backtesting with historical price data. Chapter 4 studies the phenomenon of non-convergence between futures and spot prices in the grains market. In our proposed approach, we incorporate stochastic spot price and storage cost, and solve an optimal double stopping problem to understand shipping certificate prices. Our new models for stochastic storage rates explain the spot-futures premium.

The last decade has witnessed a dramatic growth in passive investing via exchange-traded funds (ETFs). To the extent that the demand for stocks via ETF flows is not related to firm-specific fundamental values, large ETF flows may push the price of the underlying stocks away from their fundamentals-based value. In this study I provide evidence consistent with this conjecture. In particular, I first document a positive association between ETF flows and the price-to-fundamentals relation of underlying stocks. Then, by using BlackRock’s expansion into the ETF business as an exogenous shock, I provide evidence that the association is likely to be causal rather than reflect some form of endogeneity (i.e., ETFs selecting certain stocks). Also, I find that high-flow firms subsequently underperform low-flow firms in operating and stock performance, consistent with the misvaluation being caused by non-fundamental demand shocks. Cross-sectional tests suggest that the ETF-related misvaluation is stronger for stocks with: a less competitive equity market (i.e., with prices more sensitive to demand shocks), lower ownership by active investors, and more costly arbitrage constraints. Finally, I find that high-flow firms exhibit behavior typically associated with perceived overvaluation (e.g., more secondary equity offerings).

<p>Utifrån en historisk jämförelse av de tre äldsta svenska ETFerna undersöker vi huruvida svensknoterade ETFer är en bättre placeringsstrategi än aktivt förvaltade Sverigefonder. Studien genomförs med de fyra utvärderingsmåtten Sharpe Ratio, Treynor Ratio, Jensen’s alfa samt Information Ratio för att se om ETFer ger högre riskjusterad avkastning än jämförbara aktivt förvaltade Sverigefonder. De tre ETFerna, XACT OMXS30, XACT OMXSB och XACT OMXSBULL jämförs mot samtliga aktivt förvaltade Sverigefonder som har som strategi att investera i stora bolag listade på Stockholmsbörsen. Samtliga utvärderingsmått ger tvetydiga resultat men två av de undersökta ETFerna visar sig ha genererat högre riskjusterad överavkastning än de jämförda fonderna. ETFernas överavkastning kan inte statistiskt säkerställas och bör därför tolkas med försiktighet. Vår undersökning indikerar dock att det kan vara mer fördelaktigt för privata investerare som värdesätter hög likviditet och aktierelaterade egenskaper att investera i ETFer framför aktivt förvaltade fonder.</p>