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>

Since Bitcoin’s inception in 2008, the spotlight has increasingly been towards its underlying blockchain technology (Campbell, 2016, Yermack, 2017, Cong and He, 2019, Chiu and Koeppl, 2019, Gan, Tsoukalas, and Netessine, 2021). The introduction of smart contracts in 2015 marked a pivotal shift, transforming blockchain from a mere payment infrastructure into a cornerstone for decentralized finance (DeFi) services, a domain where decentralized exchanges (DEXs) play a critical role. The book "DeFi and the Future of Finance" by Harvey, Ramachandran, and Santoro, 2021 presents a vision of a financial system dominated by DeFi, arguing that its decentralized nature could lead to more efficient, cost-effective financial systems than traditional centralized systems. However, transitioning from potential to reality necessitates a critical examination of the underlying market structures, particularly as they pertain to trading on DEXs. By focusing on the market microstructure of DEXs, the research presented in my thesis seeks to uncover existing inefficiencies, understand their origins, and propose solutions for more effective market designs. Chapter 1 sets the stage by exploring the background and foundational principles of blockchainand DEXs, preparing the reader for a deeper dive into their complexities. Chapter 2 highlights the challenges of the current DEX infrastructure, such as exposure to arbitrage losses for liquidity providers, and evaluates the effectiveness of design changes. Empirical evidence from the Silicon Valley Bank collapse illustrates the impact of arbitrageurs on liquidity provision. In Chapter 3, the focus shifts to the mechanics of price discovery in blockchain-based trading platforms. The study delves into how DEXs’ unique infrastructure, such as gas fee bidding and priority sequencing rules, impacts trading strategies and information dissemination. We delve into the trading strategies of informed traders within DEXs, revealing a preference for high-fee bids to signal information, employing a "jump bidding" strategy to limit competition. Finally, Chapter 4 challenges the current information settings of public blockchains, highlighting their inadequacies for trading due to issues like information leakage, frontrunning, and inefficient blockspace allocation. It evaluates the introduction of private transaction pools as a remedy to these challenges, examining their effects on allocative efficiency and overall welfare. It suggests that private transaction submission pools could enhance welfare and mitigate frontrunning risk, without eliminating it. In summary, this thesis aims to bridge the gap between the theoretical promise of DeFi and the practical challenges it faces. By investigating the market microstructure of DEXs, it provides insights into the design of more robust, efficient, and equitable financial systems operating over blockchain technologies.

Since Bitcoin’s inception in 2008, the spotlight has increasingly been towards its underlying blockchain technology (Campbell, 2016, Yermack, 2017, Cong and He, 2019, Chiu and Koeppl, 2019, Gan, Tsoukalas, and Netessine, 2021). The introduction of smart contracts in 2015 marked a pivotal shift, transforming blockchain from a mere payment infrastructure into a cornerstone for decentralized finance (DeFi) services, a domain where decentralized exchanges (DEXs) play a critical role. The book "DeFi and the Future of Finance" by Harvey, Ramachandran, and Santoro, 2021 presents a vision of a financial system dominated by DeFi, arguing that its decentralized nature could lead to more efficient, cost-effective financial systems than traditional centralized systems. However, transitioning from potential to reality necessitates a critical examination of the underlying market structures, particularly as they pertain to trading on DEXs. By focusing on the market microstructure of DEXs, the research presented in my thesis seeks to uncover existing inefficiencies, understand their origins, and propose solutions for more effective market designs. Chapter 1 sets the stage by exploring the background and foundational principles of blockchainand DEXs, preparing the reader for a deeper dive into their complexities. Chapter 2 highlights the challenges of the current DEX infrastructure, such as exposure to arbitrage losses for liquidity providers, and evaluates the effectiveness of design changes. Empirical evidence from the Silicon Valley Bank collapse illustrates the impact of arbitrageurs on liquidity provision. In Chapter 3, the focus shifts to the mechanics of price discovery in blockchain-based trading platforms. The study delves into how DEXs’ unique infrastructure, such as gas fee bidding and priority sequencing rules, impacts trading strategies and information dissemination. We delve into the trading strategies of informed traders within DEXs, revealing a preference for high-fee bids to signal information, employing a "jump bidding" strategy to limit competition. Finally, Chapter 4 challenges the current information settings of public blockchains, highlighting their inadequacies for trading due to issues like information leakage, frontrunning, and inefficient blockspace allocation. It evaluates the introduction of private transaction pools as a remedy to these challenges, examining their effects on allocative efficiency and overall welfare. It suggests that private transaction submission pools could enhance welfare and mitigate frontrunning risk, without eliminating it. In summary, this thesis aims to bridge the gap between the theoretical promise of DeFi and the practical challenges it faces. By investigating the market microstructure of DEXs, it provides insights into the design of more robust, efficient, and equitable financial systems operating over blockchain technologies.