On leveraged and inverse leveraged exchange traded funds

Rompotis, Gerasimos G.

doi:10.5605/ieb.9.7

Cited by 4 publications

(4 citation statements)

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“…Singh and Kaur 32 identified differences in T.E.s across market regimes, with T.E.s being significantly higher during bearish regimes and significantly lower during bullish regimes. Rompotis 33 and Miziolek et al 34 analysed 14 ETFs traded on European stock exchanges with the MSCI Emerging Markets index as the underlying. The researchers discovered that ETFs were effective at regulating T.E.s and that variations in T.E.s could be explained by data frequency.…”

Section: Review Of Literaturementioning

confidence: 99%

Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance

Malhotra

Sinha

2023

Metamorphosis: A Journal of Management Research

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Since their inception in 2002, exchange-traded funds (ETFs) in India have made significant progress. The lacklustre record of active investing and the dual benefits of low-cost diversification have elevated the asset class’s credibility. During the COVID-19 crisis, equities ETFs have demonstrated greater resilience than other investment options. Our examination of 35 ETFs that mirror broader indices indicates the performance of Indian ETFs amid the economic shock caused by COVID-19. A comprehensive analysis of the daily NAV, trading price, and benchmark price data from 2015 to the present, post-identification of the pandemic period, indicates three significant inferences: First, tracking errors persist, with significant increases in all three tracking measures throughout the COVID-19 period. Second, during the COVID-19 period, the existence of pricing inefficiencies transitions from discount to premium, with an average daily value of 57.485. Nonetheless, the rate of short-term disequilibrium corrections accelerates dramatically during the COVID-19 phase. Thirdly, it took only eight days during COVID-19 to erase 50% of the disequilibrium between NAV and market price, compared to 170 days before COVID-19. During the COVID-19 era, we also notice a rise in the co-integration between ETF returns and benchmark performance and an increase in the adjustment rate from 18% to 61% per unit of time. The research findings provide portfolio managers and regulators with a comprehensive view of the performance of ETFs before and after an economic shock and offer educational benefits to a growing investor base.

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Section: Review Of Literaturementioning

confidence: 99%

Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance

Malhotra

Sinha

2023

Metamorphosis: A Journal of Management Research

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“…Few studies mainly focused on understanding the basic characteristics of ETFs such as analysis of the advantages and disadvantages of leveraged ETFs, the similarities and differences with classic ETFs etc. (Rompotis, 2014); significant comovement among ETFs of different countries (Yavas & Rezayat, 2016). Charupat & Miu (2013) conducted extensive literature review to examine the key factors contributing to pricing efficiency, tracking performance and the impact on underlying portfolios of ETFs.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Therefore, the performance of ETF is measured in terms of how efficiently the fund manager is able to track the benchmark. Unique trading mechanism of ETFs is that it trades in primary market and secondary market simultaneously (Kosev & Williams, 2011;Charteris et al, 2014;Rompotis, 2014). The authorized participants who are mainly institutional investors, trade in primary market and other investors trade in secondary market.…”

Section: Introductionmentioning

confidence: 99%

Do Exchange Traded Funds in India Have Tracking and Pricing Efficiency?

Velagala

2022

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Purpose:The study investigates tracking and pricing efficiencies of selected exchange traded funds (ETFs) in India.Design/methodology/approach: The study applies different methods of determining tracking errors to assess tracking abilities of ETF managers; the average absolute differences as well as the standard deviation of differences between ETF returns and benchmark returns and standard errors from the regression of ETF returns against the benchmark. The study further uses Vector Error Correction Model (VECM) to examine the lead lag relationship between Net Asset Values (NAVs) and market prices of ETFs and pricing efficiency. Findings: ICICI Prudential Sensex ETF exhibits the highest tracking error and Aditya Birla Sun Life Nifty ETF shows the lowest tracking error. NAVs lead their respective market prices indicating huge scope for arbitrage opportunities to authorized participants. Persistence in the deviation between NAVs and market prices is prevalent for longer period, indicating inefficient price discovery mechanism of Indian ETF market. The study confirms market inefficiency in Indian ETF market.Originality/value: The existing literature on tracking and pricing efficiencies of ETF is largely with respect to advanced countries. There is a limited evidence of such studies in Indian context. Hence, the study adds to the literature by examining the efficient market hypothesis in Indian ETF market in terms of tracking and pricing efficiencies. Practical Implications:The study reveals the presence of inefficient price discovery and the scope for arbitrage. This may be due to low level of trading activity and inefficient arbitrage mechanism in India. Hence, it is the need of the hour that Securities and Exchange Board of India (SEBI) and stock exchanges should take necessary initiatives to improve trading activity in ETFs and thereby to achieve market efficiency.

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“…The counterparties to these contracts agree to deliver to the fund daily returns based on an agreed benchmark, in exchange for fees and expenses(Charupat and Miu 2010). In practice, swaps are vastly used as they are more flexible than futures because futures require standard amounts and times to expiration(Rompotis, 2014). Futures are also more limited in terms of index representation and the risk related to imperfect hedging is significantly higher than with total return swaps(Cheng and Madhavan, 2009).…”

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confidence: 99%

Exchange traded funds in Europe and the US

Τσαλίκης¹

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Τα Διαπραγματεύσιμα Αμοιβαία Κεφάλαια είναι από τα πιο επιτυχημένα και καινοτόμα χρηματοοικονομικά προϊόντα των δύο τελευταίων δεκαετιών. Έχουν γίνει εξαιρετικά δημοφιλείς τόσο από ιδιώτες όσο και από θεσμικούς επενδυτές λόγω της απλότητας, των χαμηλού κόστους διαφοροποίησης και της εύκολης προσβασιμότητας σε διάφορες κατηγορίες περιουσιακών στοιχείων. Αυτή η διατριβή στοχεύει στην αύξηση της κατανόησης του τρόπου λειτουργίας των ETF και στην εξέταση εάν αποτελούν ασφαλές επενδυτικό μέσο για τους επενδυτές. Αν και τα πρώτα ETF ήταν σχετικά απλά και εύκολα κατανοητά, οι πρόσφατες καινοτομίες, oπως τα μοχλευμένα ETF, είναι πιο περίπλοκες και απαιτούν υψηλότερα επίπεδα εξειδίκευσης. Αυτές οι εξελίξεις δημιούργησαν νέες ευκαιρίες και προκλήσεις για επενδυτές και ρυθμιστικές αρχές. Ένας άλλος στόχος αυτής της διατριβής είναι να αξιολογηθεί η δομή των μοχλευμένων ETF και τα ιδιαίτερα χαρακτηριστικά τους μιας και η δυναμική των τιμών τους εξαρτώνται από τη διαδρομή του δείκτη που ακολουθούν.

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On leveraged and inverse leveraged exchange traded funds

Cited by 4 publications

References 14 publications

Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance

Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance

Do Exchange Traded Funds in India Have Tracking and Pricing Efficiency?

Exchange traded funds in Europe and the US

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