An empirical analysis of exchange-traded funds in the US

Abstract

This paper evaluates the performance of 110 exchange-traded funds (ETFs) in the US by adopting a frontier directional distance model, assigning different weights to three measures of net return and risk in the last three, five and ten years. While the ranking of most ETFs changes through time, some remain fully efficient in terms of both return and risk. Not only can the results mimic traditional performance measures such as Sharpe or Sortino ratios, but also the proposed approach provides more flexibility in assessing the efficiency of the sample ETFs for long-term investors who may have different appetites for risk. This study reveals a few super-efficient ETFs that regardless of the weights allocated to return and risk perform as fully efficient in both aspects. The findings also show that top-performing ETFs are predominantly within the tech, medical devices, and semiconductor sectors, enjoying relatively higher gains and lower drawdowns.