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10

You should consider an unsupervised learning algorithm such as K-nearest neighbor ('KNN'). KNN will measure the distance amongst the observations in your space. You can and probably should consider alternative distance functions (besides euclidean) particularly if you are clustering on features such as returns which have outliers. There are quite a few ...


8

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 ...


8

^GSPC is a price index, not a total return index, so it does not include dividends. SPY is an ETF that holds the underlying stocks. When it receives a dividend it keeps it in a cash account (which of course affects the NAV and market value of SPY shares) until the end of the quarter. At that time (on the 3d friday of Mar Jun Sep or Dec) it will pay out the ...


6

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 ...


6

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 ...


6

Unless explicitly mentioned, iShares ETFs do not apply any currency hedging directly. (See the factsheet for the case of IJPN. The base currency is USD merely because it is the common currency for a set of identical funds offered in many different versions around the world. At the end of each day they mark their books in USD, converting their ...


5

In general, it depends on the particular ETF, and should be checked in the prospectus, but one standard way (e.g. SPY) is to do it on a daily basis based on NAV published after the close. E.g. NAV per share = X$, so the expenses taken out would be X*0.03/(100*252). Again usually ETF's have cash component (with aggregated dividends etc), so there's no problem ...


5

Quant Guy's answer is quite informative for your question already. Just to add few other things: instead of figuring out the choice of features by your own brain, you could also use machine learning techniques to help in extracting the 'features' for your specific purpose, e.g. risk modeling or returns forecasting or portfolio construction as mentioned by ...


4

There is a good article in Seeking Alpha but if you did a Google Search you probably found it already. Some ETF's work through swaps with a counterpart, but you will never know who the counter-part is. As you said it depends on the type of ETF, with a UCITS ETF you're not supposed to have a big counter-part risk as you own the underlyings, when it's ...


4

I would look to run a pre-optimization routine over the whole universe of 200+ ETFs. I would use this pre-optimization to reduce the universe to a cardinality that provides optimal diversification effects. You can do that by first looking at pair-wise correlations and then also run optimizations to reduce portfolio variance by utilizing the covariance ...


4

Probably missing something here but if $X$ has $E(X) = \mu$ and $variance(X) = \sigma^2$ then $2X$ has $E(2X) = 2 \mu, variance(2X) = 4\sigma^2$. Thus the sharp ratio defined as $\frac{\mu}{\sigma}$ stays the same for the 2x leveraged and the regular index.


4

This is a very good question. It can be argued that risk parity is one example of a smart beta strategy. Yet it is important to understand that both are coming from two different directions: risk parity is basically a form of risk management (in the sense of risk-adjustment) because its basic approach lies in diversification - like the alternative methods ...


3

It depends on your ETF. Some have synthetic exposure to the index sold by a sponsor (ie someone give them exactly the performance of the index) but this has a cost (a constant / deterministic drag on the NAV of your ETF which doesn't appear in your tracking error). Futures on the other hand have basis, are sensitive to changes in implied dividends and ...


3

Here couple ETFs that may satisfy what you are looking for: http://www.quant-shares.com/etf-list/ http://www.etc.db.com/GBR/ENG/Institutional/Downloads/ISIN/Factsheets/GB00B4N0QN94 http://guggenheiminvestments.com/products/etf/wmcr http://etfdb.com/type/investment-style/high-beta/ Those include ETFs with a momentum approach, mean-reversion approach, ...


3

It depends a lot on the structure of the ETF, it could be : * In the "terms and conditions" of the (highly possible) total return swap of the fund * Portfolio insurance * Option combination (or cap & floor) I think it's in the swap details, already saw that a few times.


3

MSCI has country indices for developed markets going back to 1970 in many cases and a decent history for emerging markets (starting 1988). iShares has pretty liquid ETFs for many of the most popular countries and regions, such as EAFE (EFA), Emerging Markets (EEM), Japan (EWJ), Germany (EWG), Canada (EWC), etc. Other major indices with very long histories ...


3

To answer your questions: 1) Yes, the above table is correct 2) Your results are correct except..... 1X loss = 9.6%. When you combine both positive and negative changes, it is the MEDIAN value that is of interest. Here are some links: http://www.futuresmag.com/Issues/2010/March-2010/Pages/Trading-with-leveraged-and-iinverse-ETFs.aspx ...


3

Firstly, Volume doesn't equal movement. The best thing is to look at what it represents. SHV is the iShares Short Treasury Bond ETF. This means it tracks short-term treasury bonds. Many forms of balanced portfolios require some portion of funds in bonds. This ETV is an easy vehicle to get fractional exposure to bonds. As far as "has not moved much" is ...


3

I don't have much experience in the matter, but I've been doing some related literature research recently and I think these links can be helpful: A rather recent study from CME A (possible a bit biased) report by BlackRock A report by Lyxor (asset manager affialiated to Societe Generale)


3

There are plenty of sites you can get this information from. etfdb.com and etf.com are two of the bigger ones. See this for an example: http://etfdb.com/etfdb-category/europe-equities/ http://etfdb.com/tool/etf-stock-exposure-tool/


3

Quite a good article can be found here: http://seekingalpha.com/article/3140956-investing-in-leveraged-etfs-theory-and-practice Just selling a pair of leveraged ETFs to harvest the "volatility decay" is comparable to a short straddle... highly skewed and therefore quite dangerous (from the article): There are no free lunches in the market. The apparent ...


2

I recommend you read the Financial Stability Board report. FT Alphaville provides a nice summary of the report with plenty of links to investigate further.


2

I found this searchable/sortable list: http://www.etftrends.com/etf-analyzer.php . Premium membership is required to sort by inception date, $15/month.


2

Rather than suggesting alternative clustering techniques, as Quant Guy and Flake have (great advice, btw), I'll offer my thoughts on the method you've proposed. On the characteristics used to cluster stocks: You propose using sample statistics (mean and standard deviation of returns). I would suggest you use the entire return (not price) series. For ...


2

The futures price goes to the spot price as time to maturity declines, not vice-versa. The difference is referred to as basis. That's not really what roll yield is about though. The roll yield aspect is that as the contracts the ETF holds are expiring, they are close to the spot price. However, the next futures contract's price is higher than the price of ...


2

When I select assets for a portfolio given an universe, I tend to pick ones that span the beta spectrum, given your selected benchmark. I find that if your portfolio of assets have varying volatility or correlation, you can achieve better diversification. I didn't come up with the idea but it comes from a rotational system's framework from the link below: ...


2

Basically the Total Return Index assumes reinvestments compared to "regular" indices. "A total return index is an index that measures the performance of a group of components by assuming that all cash distributions are reinvested, in addition to tracking the components' price movements.1 While it is common to refer to equity based indices, there ...


2

Have you considered using 'incremental' singular value decomposition to calculate your component scores? Each future market move (or increment) forces a recalculation of component scores given the new data. This paper outlines an algorithm to do this Fast Low-Rank Modifications of the Think Singular Value Decomposition This paper develops an identity ...


2

Many funds, that manage ETFs provide this on their webpages. E.g. SDPR (SPY, XL* family) has is in "NAV history" xls file on https://www.spdrs.com/product/fund.seam?ticker=SPY


2

Better to compute it by yourself either using Historical simmulation, Monte Carlo, or simple parametric method such as variance-covariance. Alternatively subscribe toBloomberg Risk Analytics, populate the ISIN(s) for your ETF(s) and get the relevant metrics.



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