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Article
Publication date: 1 September 2022

Narat Charupat, Zhe Ma and Peter Miu

Prior literature has shown that, theoretically, holding-period returns of a leveraged exchange-traded fund (LETF) are generally negatively affected by the volatility of the…

Abstract

Purpose

Prior literature has shown that, theoretically, holding-period returns of a leveraged exchange-traded fund (LETF) are generally negatively affected by the volatility of the underlying benchmark’s daily returns, particularly for long holding periods. However, recent empirical studies simulate LETFs’ returns using historical benchmark returns and report results that are not entirely consistent with the theoretical predictions, leading to the possibility that the distribution of real-world returns may have certain characteristics that influence the outcomes. In this paper, the authors examine how asymmetric volatility affects LETFs’ performance and provide detailed explanations for the behavior of the performance of LETFs under different market conditions.

Design/methodology/approach

The authors conduct simulation analyses on a +3x LETF and a −3x LETF based on historical S&P 500 stock index returns, with asymmetric volatility incorporated into the model.

Findings

By incorporating the asymmetric volatility effect, the simulation results suggest that, contrary to the theoretical predictions, higher volatility does not always lead to more negative impact on LETFs’ performance. Rather, the performance depends on the market conditions under which high volatility occurs. The findings therefore help reconcile prior theoretical predictions with reported empirical findings.

Originality/value

The analysis adds to the literature by incorporating the asymmetric volatility effect of stock returns in studying LETFs’ performance. The authors also provide detailed explanations for the behavior of LETFs’ returns and compounding effect under different market conditions, thus providing contexts to prior empirical results.

Details

Managerial Finance, vol. 49 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 12 April 2013

Narat Charupat and Peter Miu

The purpose of this paper is to provide a brief review of three strands of the literature on exchange‐traded funds.

4441

Abstract

Purpose

The purpose of this paper is to provide a brief review of three strands of the literature on exchange‐traded funds.

Design/methodology/approach

The paper starts with a review of the history of the growth of exchange‐traded funds and their characteristics. The paper then examines the key factors and findings of the existing studies on, respectively, the pricing efficiency, the tracking ability/performance, and the impact on underlying securities of exchange‐traded funds.

Findings

Although there has been a substantial amount of research conducted to advance our knowledge on the trading, management, and effect of exchange‐traded funds, the findings are still far from conclusive in addressing a number of research questions.

Practical implications

Investors and other market participants will find this review informative in enhancing the understanding of exchange‐traded funds.

Originality/value

By highlighting the general theme of the related research findings, the paper provides a systematic review of the existing literature that future researchers can utilize in developing their research agenda.

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Content available
Article
Publication date: 12 April 2013

Peter Miu and Narat Charupat

454

Abstract

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 12 April 2013

Dennis Y. Chung and Karel Hrazdil

The aim of this paper is to examine the informational efficiency of prices of all exchange traded funds (ETFs) that are actively traded on the NYSE Arca, based on methodology…

1206

Abstract

Purpose

The aim of this paper is to examine the informational efficiency of prices of all exchange traded funds (ETFs) that are actively traded on the NYSE Arca, based on methodology developed by Chordia et al.

Design/methodology/approach

The authors estimate the speed of convergence to market efficiency based on short‐horizon return predictability from past order flows of 273 ETFs that were traded every day on the NYSE Arca during the first six months of 2008, and compare the resulting price formation process to that of shares traded on the NYSE and NYSE Arca.

Findings

Despite the significant differences in trading costs, volatility, and informational effects between ETFs and regular stocks, the paper documents that price adjustments to new information for ETFs occur in about 30 minutes, which is comparable to price adjustments for traditional stocks traded on Arca. In multivariate setting, the paper further shows that the speed of convergence to market efficiency of ETFs is not only significantly driven by volume, but also by the probability of informed trading.

Research limitations/implications

The findings provide direct answers and insights to questions posed in a recent SEC concept release document. The analysis of the speed of convergence provides a feasible measure to assess how efficiently prices of ETFs respond to new information.

Originality/value

The authors are first to utilize the short‐horizon return predictability from historical order flow approach to evaluate the price formation process of ETFs and to provide evidence on the determinants of its efficiency.

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 12 April 2013

Pauline M. Shum and Jisok Kang

Leveraged and inverse ETFs (hereafter leveraged ETFs) have received much press coverage of late due to issues with their performance. Managers and the media have focused…

1891

Abstract

Purpose

Leveraged and inverse ETFs (hereafter leveraged ETFs) have received much press coverage of late due to issues with their performance. Managers and the media have focused investors' attention on the impact of compounding, when the funds are held for more than one day. The aim of this paper is to lay out a framework for assessing the performance of leveraged ETFs.

Design/methodology/approach

The authors propose a simple way to disentangle the effect of compounding and that of the management of the fund and the trading premiums/discounts, all of which affect investors' bottom line. The former is influenced by the effectiveness and the costs of the manager's (synthetic) replication strategy and the use of leverage. The latter reflects liquidity and the efficiency of the market.

Findings

The paper finds that tracking errors were not caused by the effects of compounding alone. Depending on the fund, the impact of management factors can outweigh the impact of compounding, and substantial premiums/discounts caused by reduced liquidity during the financial crisis further distorted performance.

Originality/value

The authors propose a framework for practitioners to evaluate the performance of leveraged ETFs. This framework highlights a very topical issue, that of the impact of synthetic replication, which all leveraged ETFs use. Financial regulators such as the SEC and the Financial Stability Board have all taken issue with synthetically replicated ETFs. In leveraged ETFs, this issue is masked by the effects of compounding. The framework the authors propose allows investors to disentangle the two effects.

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 12 April 2013

Stoyu I. Ivanov

The purpose of this study is to extend the work of DeFusco, Ivanov and Karels by examining pricing deviation of DIA, SPY and QQQQ on intradaily basis.

1945

Abstract

Purpose

The purpose of this study is to extend the work of DeFusco, Ivanov and Karels by examining pricing deviation of DIA, SPY and QQQQ on intradaily basis.

Design/methodology/approach

The DIA is designed to be one hundredth of the DJIA, the SPY is designed to be one tenth of the S&P 500 and QQQQ is designed to be one fortieth of the NASDAQ 100. This feature of ETFs requires the estimation of the difference between the proportional level of the index and the price of the ETF, which is the ETF pricing deviation.

Findings

The paper finds that the DIA, SPY and QQQQ pricing deviations are 0.0429, −0.0743 and 0.4298, respectively. The findings indicate that the prices of DIA and QQQQ are on average lower than the underlying indexes. SPY is the exception having a price which is higher than the theoretical price of the S&P 500 index. The author finds that this is due to the increased demand for the SPY. Additionally, the paper provides an explanation for the large change (increase) in the pricing deviation of QQQQ after December 1, 2004 which DeFusco, Ivanov and Karels could not explain. On December 1, 2004 QQQQ trading was consolidated on NASDAQ. The paper finds negative growth in the volume of QQQQ after December 1, 2004 indicating decrease in popularity of this ETF. The decrease in popularity of QQQQ might explain the increase in its pricing deviation.

Research limitations/implications

The paper uses high frequency data in the analysis of pricing deviation which might be artificially deflating standard errors and thus inflating the t‐test significance values.

Originality/value

The paper contributes to the ongoing search in the finance literature of precision ETF performance metrics.

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 12 April 2013

Naresh Bansal, Ryan McKeon and Marko Svetina

The purpose of this paper is to investigate the extent to which introduction of ETFs reduces short‐sale constraints in their constituent stocks.

Abstract

Purpose

The purpose of this paper is to investigate the extent to which introduction of ETFs reduces short‐sale constraints in their constituent stocks.

Design/methodology/approach

First, the introduction of ETFs increases short interest for stocks that they hold. Second, the increase in short interest is highest for the stocks that were most short‐sale constrained. Third, subsequent additions of a stock to an ETF will have a lesser impact on short interest than the first time additions. Finally, using matched control sample and regression analysis approaches, the authors make sure that their results are robust to determinants of short‐selling activity which extant research has found to be relevant.

Findings

When a stock is included in an ETF for the first time, the paper finds that the average monthly short‐selling activity of the stock in the six months following ETF‐inclusion is, on average, 33 percent higher than that in six months prior to the inclusion. This effect is the strongest for stocks that are most short‐sale constrained. The analysis of subsequent additions of stocks to ETFs reveals that the effect of increased short‐selling activity is significantly attenuated when compared to the first‐time additions. All of the findings are robust to the matched sample comparisons and multiple regression analysis that account for determinants of short‐selling activity.

Originality/value

This paper shows that: the introduction of ETFs helps relax short‐sale constraints in the market; that the extent to which a stock's outstanding shares are held by one or more ETFs serves as a proxy for the degree to which stocks are short‐sale constrained; and implies that the introduction of ETFs makes the prices of the funds' underlying securities more efficient.

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 December 2004

George K. Stylios

Examines the tenth published year of the ITCRR. Runs the whole gamut of textile innovation, research and testing, some of which investigates hitherto untouched aspects. Subjects…

3517

Abstract

Examines the tenth published year of the ITCRR. Runs the whole gamut of textile innovation, research and testing, some of which investigates hitherto untouched aspects. Subjects discussed include cotton fabric processing, asbestos substitutes, textile adjuncts to cardiovascular surgery, wet textile processes, hand evaluation, nanotechnology, thermoplastic composites, robotic ironing, protective clothing (agricultural and industrial), ecological aspects of fibre properties – to name but a few! There would appear to be no limit to the future potential for textile applications.

Details

International Journal of Clothing Science and Technology, vol. 16 no. 6
Type: Research Article
ISSN: 0955-6222

Keywords

Article
Publication date: 19 January 2021

John N. Walsh and Jamie O'Brien

While service scholars see modularisation as balancing the efficiency of standardisation with the value added through customisation the relationships between these concepts are…

Abstract

Purpose

While service scholars see modularisation as balancing the efficiency of standardisation with the value added through customisation the relationships between these concepts are under-theorised. In addition, although information and communication technologies can facilitate all three service strategies, the degree to which they codify service knowledge is not explicitly considered in the extant literature. The purpose of this paper is to develop and validate a model that examines service strategy trajectories by specifically considering the ICTs used and the degree of knowledge codification employed.

Design/methodology/approach

This study draws on three qualitative case studies of service departments of firms involved in cardiovascular applications, orthopaedic, spinal and neuroscience product development and information technology support. Data collection involved semi-structured interviews, document analysis and non-participant observation.

Findings

Findings show that ICTs were increasingly used to codify both standardised and customised services, though in different ways. For standardised services ICTs codified the service process, making them even more rigid. Due to the dynamic nature of customised services, drawing on experts' tacit knowledge, ICTs codified the possessors of knowledge rather than the service process they undertook. This study also identified a duality between the tacit development of customised services and modular service codification.

Research limitations/implications

The model is validated using case studies from three companies in the medical and information technology sectors limiting its generalisability.

Practical implications

The importance of considering the degree of tacitness or explicitness of service knowledge is important for service codification. The paper provides managers with empirical examples of how ICTs are used to support all three strategies, allows them to identify their current position and indicates possible future trajectories.

Originality/value

The papers main contribution is the development of a model that integrates the literature on service strategies with knowledge management strategies to classify service standardisation, customisation and modularisation in terms of both service orientation and degree of ICT codification.

Details

Journal of Service Theory and Practice, vol. 31 no. 3
Type: Research Article
ISSN: 2055-6225

Keywords

Content available
Article
Publication date: 17 June 2011

Peter Ryan

298

Abstract

Details

The Journal of Mental Health Training, Education and Practice, vol. 6 no. 2
Type: Research Article
ISSN: 1755-6228

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