Abstract
Investments in exchange traded funds (ETFs) have gained significant popularity among the financial investors.ETFs track industry-based indexes. Index mutual funds also track industry-based indexes. The financial investorsdo not have a documented analytical method to compare the financial returns of index ETFs and matched indexfunds. We have performed quantitative comparisons of the financial returns of index ETFs and matched indexmutual funds with the use of nonparametric Kruskal-Wallis hypotheses tests, assuming that the financial returnsof index ETFs and matched index mutual funds are independent. We have tested the null hypotheses that themedians of the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of the S&P 500 index,large cap index, mid cap index, small cap growth index, REIT index, and total bond market index ETFs are asthe same as the medians of the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of thematched S&P 500 index, large cap index, mid cap index, small cap growth index, REIT index, and total bondmarket index mutual funds. The time periods of comparison have been from the inception dates of ETFs till theend of 2013. The findings from this research work suggest that we do not reject the null hypotheses that thedistributions of the Sharpe ratios and the risk-adjusted buy and hold returns of index ETFs and the distributionsof the Sharpe ratios and the risk-adjusted buy and hold returns of matched index mutual funds have the samemedians during the time periods that we have tested.
Highlights
This is because the standard deviation of the total bond market index exchange traded funds (ETFs) and the matched index mutual funds are the lowest in values
The Sharpe ratio and the risk-adjusted buy and hold return values are similar for the S& P 500 index ETF and matched mutual fund
We observe that the Sharpe ratio and the risk-adjusted buy and hold return values are slightly different for the total bond market index ETF and matched mutual fund, probably because the time period of comparison for these funds is from only 2008 through 2013
Summary
1.1 Introduce the ProblemIn the last few years, investments in exchange traded funds (ETFs) have gained significant popularity among the financial investors (Agapova, 2011; Charupat & Miu, 2013; Rompotis, 2009a; Sharifzadeh & Hojat, 2012). Charupat & Miu (2013) documented that by the end of 2011, the combined assets under management of all ETFs traded in the different stock exchanges around the word were $1.52 trillion. In the last few years, investments in exchange traded funds (ETFs) have gained significant popularity among the financial investors (Agapova, 2011; Charupat & Miu, 2013; Rompotis, 2009a; Sharifzadeh & Hojat, 2012). Charupat & Miu (2013) documented that by the end of 2011, the combined assets under management of all ETFs traded in the different stock exchanges around the word were $1.52 trillion. From 2001 to the end of 2011, there had been a 1400 percent increase in the assets under management of all ETFs (Charupat & Miu, 2013) According to these authors, approximately 4000 ETFs are traded in 50 stock exchanges around the world. All of these characteristics of ETFs have led to the continuous growth in ETF investments (Dimkpah & Ngassam, 2013)
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