Index ETF Research Articles

Water exchange traded funds: A study on idiosyncratic risk using Markov switching analysis

AbstractWe investigate the relationship between idiosyncratic risk and return among four water exchange traded funds—PowerShares Water Resources Portfolio, Power Shares Global Water, First Trust ISE Water Index Fund, and Guggenheim S&P Global Water Index ETF using the Markov switching model for the period 2007–2015. The generated transition probabilities in this paper show that there is a high and low probability of switching between Regimes 1 and 3, respectively. Moreover, we find that the idiosyncratic risk for most of the exchange traded funds move from low volatility (Regime 2) to very low volatility (Regime 1 and 3). Our study also identify that the beta coefficients are positive and entire values are less than 1. Thus, it seems that water investment has a lower systematic risk and a positive effect on the water exchange traded index funds returns during different regimes.

Availability of Heat Conduction for Environmental Control Method to Improving Thermal Environment and Preventing Oversensitivity to Cold and Air-Conditioning Disease on Female Office Workers

The purpose of this study is to demonstrate the effect localized heating of the feet has on physiological and psychological reactions of female in an air-conditioned environment in summer. In Japan, female office workers wear less clothing than their male counterparts. In an air-conditioned office space in summer, female conducts thermoregulation by putting on cardigans, etc. but this action does not greatly contribute to improving conditions for the legs and feet, the lower extremities of the body. The improvement of sensational and physiological temperature by localized warming of the body can contribute to a healthy working environment for female office workers, their safety, and a reduction in air conditioning’s energy expenditure. We used the indoor thermal environment evaluation index ETF to investigate the effect localized heating of the feet has on human physiological and psychological response in an air-conditioned environment in summer. The result of heating by means of heat conduction via the sole of the foot was expressed more strongly as a psychological effect than as a whole-body physiological effect. Heating by means of heat conduction via the sole of the foot was a thermal environment factor that compensates for a low temperature in whole-body thermal sensation and whole-body thermal comfort. The effect of heating due to heat conduction via the sole of the foot was expressed in the change in sole-of- the-foot skin temperature. Applying slight heat conduction by means of heating via the sole of the foot demonstrated the result of improved whole-body thermal sensation and whole-body thermal comfort.

Evolution of high-frequency systematic trading: a performance-driven gradient boosting model

This paper proposes a performance-driven gradient boosting model (pdGBM) which predicts short-horizon price movements by combining nonlinear response functions of selected predictors. This model performs gradient descent in a constrained functional space by directly minimizing loss functions customized with different trading performance measurements. To demonstrate its practical applications, a simple trading system was designed with trading signals constructed from pdGBM predictions and fixed holding period in each trade. We tested this trading system on the high-frequency data of SPDR S&P 500 index ETF (SPY). In the out-of-sample period, it generated an average of 0.045% return per trade and an annualized Sharpe ratio close to 20 after transaction costs. Various empirical results also showed the model robustness to different parameters. These superior performances confirm the predictability of short-horizon price movements in the US equity market. We also compared the performance of this trading system with similar trading systems based on other predictive models like the gradient boosting model with L2 loss function and the penalized linear model. Results showed that pdGBM substantially outperformed all other models by higher returns in each month of the testing period. Additionally, pdGBM has many advantages including its capability of automatic predictor selection and nonlinear pattern recognition, as well as its simply structured and interpretable output function.

(How) has the market become more efficient?

Abstract Using a portfolio of Dow Jones Industrial Average index constituents and the index ETF, we document significant intraday deviations from the law of one price. These are especially pronounced at very short time intervals. The extent of deviations is related to volatility, liquidity, and transaction costs of both the index constituents and the ETF. Further, the influence of news arrival, and liquidity (volatility) shocks on the deviations persists for several hours. Finally, we document significant decline (by at least 80%) in the deviations between 1998 and 2010. We find that this decline is largely due to decimalization, the repeal of the uptick rule, and the introduction of automated updating of the NYSE order book. Overall, our findings indicate an increase in operational market efficiency.

Price and volume effects associated with scheduled changes in constituents of index: study of NIFTY index in India

This paper examines price and liquidity effects associated with scheduled index reorganisation in NIFTY surrounding its announcement and effective days. The results show that there are no significant abnormal positive returns associated with index inclusion surrounding announcement day. Significant positive abnormal returns associated with inclusion are present on effective day but fails to sustain. Significant negative price effect associated with exclusion of stocks is observed through the announcement window and indicates that exclusion from index is treated as negative. Negative price effect is observed for exclusion closer to and on effective day but that also does not sustain. No significant and sustainable change in trading volume is associated with index reorganisation. Increase in volume associated with inclusion and exclusion of securities is found on effective day, which can be attributed to index funds and ETF activity. Results of this study offers evidence for price pressure and against liqui...

Fear Sentiment, Liquidity, and Trading Behavior: Evidence from the Index ETF Market

This paper explores how the fearful market-based sentiment indicators affect investor trading behavior and market liquidity. Our results show that a high degree of fearful market-based sentiment induces more sell orders along with a reduction in market liquidity, and vice versa. In addition, most of our findings suggest that the fear sentiment, in the case of extremely high implied volatility, decreases net buying volume more significantly. As for the interaction between fearful market-based sentiment and institutional investor expectation, we show that net buying volume and market liquidity decrease (increase) more significantly than they normally do when the fearful market-based sentiment increases (decreases) in the state of bearish institutional investor expectation. The results provide support to the myopic loss aversion of investors.

The gold price in times of crisis

Motivated by the recent gold price boom, this paper examines whether an asset bubble exists in the gold market. We approximate gold's fundamental value using several econometric models and apply a Markov regime-switching Augmented Dickey–Fuller (ADF) test which has substantial power for detecting explosive behavior. Although our results are sensitive to the specification of the fundamental value, we show that a model accounting for the current European sovereign debt crisis accurately tracks the gold price observed in the market. We also note that inflation in a general commodity price index and gold ETF demand have a potential to explain the price trajectory.

Effects of Visual Stimuli upon Thermal Sense under Air Conditioning in Summer

Human thermal sense is not expressed only by simple heat equilibrium. The influence of visual and auditory stimuli causes differences in overall thermal sense arrived at by sophisticated sensory processing by the cerebrum. If it can be clearly shown that a thermal environment considered slightly uncomfortable could be ameliorated using visual stimuli, the cost effectiveness of such an initiative would be highly significant, particularly in terms of air conditioning system running costs. Focusing on the visual stimuli provided by greenery, experiments were conducted in a thermal environment deemed slightly uncomfortable, where the temperature was set at a base point of 28oC. Experiments were conducted in a temperature-controlled room. Thermal environmental conditions were set at three different temperatures: 25oC, 28oC and 31oC. Wall surface temperatures were set to equal these temperatures. Air velocity (calm air currents of 0.2 m/s or less) and relative humidity (60% RH) were set the same throughout. Subjects were asked to sit quietly for the test. The visual stimuli consisted of ten different types of scenery, including that of leafy vegetation. The influence of overall stimuli of the cerebrum on the indoor thermal environmental index ETF was determined to prove the significance of actively placing visual stimuli in spaces. Thermal stimuli influence the human body on mean skin temperatures, while visual stimuli do not affect mean skin temperatures. In ETF deemed fairly uncomfortable, that is at a range of hotter than 28-29oC, clear improvements were observed in thermal sense due to the influence of visual stimuli such as natural elements including vegetation like greenery. Visual stimuli were appropriate at a level of up to 69% greenery, where a dynamic effect on warmer environmental conditions can be felt and where the depth of fuller vegetation cover can be perceived.

Minimum Maturity Rules: The Cost of Selling Bonds before Their Time

The authors found that the performance of traditional fixed-income index funds is negatively affected by minimum maturity rules of the indices that the funds seek to replicate. Bonds removed from indices for violating minimum maturity rules underperformed a matched sample in an extended period surrounding their removal, resulting in a 3.5 bp loss in annualized return to the ETF from which the bonds were removed. The authors demonstrate that relaxing the minimum maturity rules could result in improved performance for a popular fixed-income index ETF.

산업별 ETF의 가격결정에 영향을 미치는 추적오차의 정보효과에 관한 연구

The purpose of this study is to analyze the information effect about the pricing using the ETF price, the benchmark index, and the total tracking error between the ETF price and the benchmark index on the index ETF market and sector ETF markets. Furthermore, the total tracking error is distinguished between the market tracking error and the NAV tracking error. Summary of this study are as follows: First, While KODEX200 don`t have impact factors on the price, the most sectors of ETF have the factors affecting the pricing decision. They are the day before the total tracking error or market tracking error. Second, for the ETF price of the most industry, we find that the day before the market tracking error have the price discovery function because it is a negative(-) coefficients. But NAV tracking error could not find such a feature. Finally, the sector ETF price of energy chemical, construction, IT, and semiconductor industries affected of the day before positive(+) impact by the benchmark index price.

The Relationship between SRI ETF Price and Market Index ETF Price

The Relationship between SRI ETF Price and Market Index ETF Price