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7

An index is just an abstract concept and does not hold securities. Hence no source of revenue from lending them. A portfolio mirroring an index holds the securities and can in fact generate revenue by loaning the securities to others wanting to short the stocks. This provides a positive bias. That is often offset by a negative bias when the index ...


5

Are there any other mechanisms at play here which might explain this kind of tracking error? Dirk is right, you often lend the titles internally or not, etc. You can also write calls for your index, this is not orthodox, but it's ETF, there is no orthodoxy there... Edit : With the graph and given the outperforming is seasonnal (around May), I think we ...


5

When testing your strategy, what you need to pay particular attention to is performance attribution, in other words why did you see the returns you did? Let me give you a simple example to illustrate what I mean. Suppose I have an algorithm to pick stocks and you have a testing database of stock prices for one year. Suppose also that in that year the market ...


4

The best solution in most cases where one is backtesting from a non-standard universe is to construct your own index. I believe that to also be true in your case, as there is no standard index tracking the returns of a particular basket of options. VIX, in particular, is more accurately thought of as a price index, not a return index, in the options world. ...


4

In my mind, there are two questions here: 1) How does DB make money given a zero expense ratio? This is covered by Dirk and Lliane. Basically, DB gets cheap funding and stock loan fees in return for paying marketing / index / hedging costs. The ETF investor gets zero expense ratio in return for taking DB credit risk. 2) Why does it look like the etf ...


4

Clearly, it's much more difficult than for a white-box strategy. But you still have some information: What is the return profile? What is the average holding period? Does it go long/short? What assets are traded? Now you can choose a benchmark of an index that matches these criteria as closely as possible. If an appropriate benchmark doesn't exist, ...


3

There are a few things: Non-cynical: Active absolute return managers tend to underperform passive benchmarks after fees. So if you can get a manager that can outperform a passive benchmark (perhaps who has a mostly passive strategy with some active tilts), then you are doing well. Your scenario of a portfolio dropping 48% is not realistic. Most asset ...


3

The first reason is the answer to this question : should I bother invest in your fund and not simply invest in the S&P500 etf ? The second is : Are you a fraud ? If someone claims to use a long only strategy with stocks from the S&P500, you expect his fund returns to be correlated to the S&P500 to some extent. If it is not the case => fraud.


3

Summary Answer: Those are interested to benchmark against indexes who sell such index products (pricing data, trade marks, rights to use and publish), and of course portfolio managers because they look generally much better when indexed against indexes than when being assessed through risk-adjusted returns. The general public is sadly just too uninformed to ...


3

I did not look at the data, but recall that beta is a parameter in the following equation: $$ r_A = \alpha + \beta r_B + \epsilon $$ relating two returns (random variables, samples) $r_A$ and $r_B$. To calculate beta you peform $$ \beta = \frac{cov(r_A,r_B)}{var(r_B)}. $$ Thus if assets $A$ and $B$ exchange roles, then only the denominator changes. In your ...


3

I encountered the same problem as I needed an index including equity, fixed income and alternative assets for my master thesis research. I needed to estimate the beta of my optimal portfolios with a representative index in order to compare the portfolios by treynor and Jensen measure. Combining for instance, the MSCI and Barcap is no option as the I already ...


2

The fastest systems out there are mostly custom built hardware solutions and even the off the shelf solutions are evolving very rapidly right now. There is a company call Correlix which provides latency measurement of trading systems with extremely high resolution. I have not needed their services and thus I cannot comment on how effective they are. One ...


2

There were a few vendors at the 2009/2010 Futures and Options Expo in Chicago that did exactly this. Two that I recall are RTS Group and Solace Systems however their sites don't mention anything of bench marking. Perhaps I'm missing it or they're no longer doing it.


1

You represent your bond as a vector of 4 equivalently weighted parameter and try to find the optimal representation for the 1-norm. Parameters are not equivalent, more than that they have non linear ties, it is not okay to represent a bond with a set of common parameters. If you have a family of bond with the same Coupon, Issue Date, Volume and different ...



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