1 / 7

European bond ETFs – tracking error and the sovereign debt crisis

The First International Moscow Finance Conference 2011. European bond ETFs – tracking error and the sovereign debt crisis. M. Drenovak , B. Urosevic and R. Jelic Discussed by: Sergey Gelman , ICEF, Higher School of Economics, Moscow. Summary (I).

ryanwood
Télécharger la présentation

European bond ETFs – tracking error and the sovereign debt crisis

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The First International Moscow Finance Conference 2011 European bond ETFs – tracking error and the sovereign debt crisis M. Drenovak, B. Urosevic and R. Jelic Discussed by: Sergey Gelman, ICEF, Higher School of Economics, Moscow

  2. Summary (I) • Studies differences in performance of in-kind and synthetic ETFs using different measures of tracking errors (TE) • About 3 years of data, 31 fund • Methodology: 4 types of tracking error measurement, panel regressions for active TE and standard TE

  3. Summary (II) Results: • Substantial discrepancy between return level and cointegration based measures on one side and correlation based measures on the other side: synthetic perform better according to former and worst according to latter • Positive relationship of TE and volatility, maturity and CDS rates of underlying is confirmed • TE grew with the crisis

  4. Comments (I) • An interesting paper, raises a number of issues • Is synthetic implication unique to FI-ETFs? • ETF market • ETFs are traded at a stock exchange at market prices • Fund managers publish NAV, but buy back at NAV only very large lots (50000 units) • Deviation of the ETF price from index • (see Elton et al. 2002)

  5. Comments (II) • Analyze both sources of deviations. For the first • Look at market depth • Volume • Creations/deletions • Different types of ETFs track different indices – not a very fair comparison (may be its not physical vs. synthetic). Seems more adequate: • Sharpe ratio (or SR improvement compared to underlying) • Hedging performance

  6. Comments (III) • Lyxor seems to be an actively managed fund. Relate to literature on comparison of active vs. passive • Bit more info on swap agreements: what are the costs? • Different types of tracking errors address different investors’ questions: TE1 – how much do I earn (compared to replicating the index myself), TE2, TE4– is it an appropriate hedging instrument? • Btw., can this questions be answered directly?

  7. Comments (IV) • TE3 should be discarded in case of non-zero constant and non-unity slope • Panel regression – autocorrelation issue • Cointegration: is there a trend (or constant)?

More Related