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Review of Literature

Review of Literature

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Published by: hk_sehmbi on Mar 04, 2011
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REVIEW OF LITERATURE
Various studies on exchange traded funds related to small and medium enterprises hadbeen conducted in foreign countries .However, in indian context ,the number is quitefew.Depending on the various issues of exchange traded funds ,the review has beendiscussed in brief as follows:
Poterba & Shoven (2002)
analysed that Exchange traded funds (ETFs) are a new varietyof mutual fund that first became available in 1993. ETFs have grown rapidly and nowhold nearly $80 billion in assets. ETFs are sometimes described as more 'tax efficient'than traditional equity mutual funds, since in recent years, some large ETFs have madesmaller distributions of realized and taxable capital gains than most mutual funds. It alsocompares the pre-tax and post-tax returns on the largest ETF, the SPDR trust that investsin the S&P500, with the returns on the largest equity index fund, the Vanguard Index500. The results suggest that between 1994 and 2000, the before- and after-tax returns onthe SPDR trust and this mutual fund were very similar. Both the after-tax and the pre-taxreturns on the fund were slightly greater than those on the ETF. These findings suggestthat ETFs offer taxable investors a method of holding broad baskets of stocks that deliver returns comparable to those of low-cost index funds.
Alexander & Barbosa (2005)
investigates the optimal short-term hedging of ExchangeTraded Fund (ETF) portfolios with index futures. Using daily data from May 2000 toDecember 2004 on the four largest passive ETFs (the Spider, the Diamond, the Cubesand the Russell iShare) and their corresponding index futures we examine theperformance of minimum variance hedges for efficient variance reduction and for investors with exponential utility. Our findings relate to daily hedging based on OLSregression, exponentially weighted moving averages and ECM-GARCH models and theutility-based performance evaluation criterion is adopted to capture an efficient reductionin skewness and kurtosis as well as the variance. The basis risk on US equity indices isnow extremely low and as a result we find no evidence that minimum variance hedgeratios outperform a naïve 1:1 futures hedge, either for individual ETFs or for portfolios of 
 
ETFs. Where minimum variance hedge ratios are useful is for the cross-hedging of ETFs,i.e. the netting of long-short positions prior to placing a futures hedge. We also find thathedging of an ETF portfolio with just one index future can be almost as effective ashedging with all the relevant index futures. Our results should be of interest to taxarbitrage investors in ETFs and their market makers, who often face large andheterogeneous creation and redemption demands on different ETFs. Both types of tradersmay consider hedging their positions overnight or over a few days.
Nguy
en, et all (2009)
examine the opening of Exchange Traded Fund (ETF) markets in amultimarket trading environment and find that the opening trades on the American Stock Exchange (AMEX) are the most costly. This result is consistent with the market power hypothesis which suggests that the specialists use their informational advantage about theorder imbalance at the open or take advantage of the inelastic demand at the open byimposing wider spreads. We also find that the transparent opening mechanisms of theNew York Stock Exchange (NYSE) and Electronic Communication Networks (ECNs)enable them to facilitate greater price discovery at the opening and to have more efficientopening prices. This result implies that the transparency effect dominates the marketpower effect. Further, we find that peripheral markets do not passively free ride oninformation revealed through the AMEX because their opening trades contributesignificantly to the price discovery process.
Ja
ggi
a & Hawke (2009)
argues that Recent studies have documented the importance of asymmetry and tail-fatness of returns on portfolio-choice, asset-pricing, value-at-risk andoption-valuation models. This article explores the nature of skewness and elongation indaily Exchange-traded Fund (ETF) return distributions using g, h and (g × h)distributions. These exploratory data analytic techniques of Tukey (1977) reveal patternsthat are hidden from a cursory glance at conventional measures for skewness andelongation. The g, h and (g × h) distributions provide parameter estimates that indicatesubstantial variation in skewness and elongation for individual ETFs; nonetheless, sometrends are discovered when the funds are grouped by fund size and style of investing.Monte Carlo simulations suggest that these exploratory techniques are able to capture
 
patterns found in commonly used Generalized Autoregressive ConditionalHeteroskedasticity (GARCH) family of models.
Barnhart & Rosenste
i
n (2010)
examined that Exchange-traded funds (ETFs), likeclosed-end funds (CEFs), are managed portfolios traded like individual stocks. Wehypothesize that the introduction of an ETF in an asset class similar to an existing CEFresults in a substitution effect that reduces the value of the CEF's shares relative to that of its underlying assets. Our event studies show that upon the introduction of a similar ETF,CEF discounts widen significantly and relative volume declines significantly. Single-equation and systems estimation models show that the widening in discounts andreduction in volume are related to returns-based measures of the substitutability of ETFsfor CEFs. Copyright (c) 2010, The Eastern Finance Association
Tan
g
& Won
g
(2010)
examines that The Tracker Fund of Hong Kong, the first launchedexchange-traded fund in Asia except Japan, aims to track the performance of the HangSeng Index. This article examines the fund's characteristic via investigating the intradayand intraweek patterns of the fund's premiums. Empirical results suggest that no suchpatterns exist on the mean premium. However, a weak intraweek pattern is found for thevolatility of premium and the number of transactions. Furthermore, for all measuresexcept the mean premium, we find that a significant intraday pattern with a double-Ushape or a W-shape exists.
Won
g
& Sh
um
(2010)
analysed that An Exchange-Traded Fund (ETF) aims to track theperformance of market indices. This article examines the performances of 15 worldwideETFs across bearish and bullish markets over the period 1999 to 2007. The resultsindicate that ETFs always provide higher returns in a bullish market than in a bearishmarket by the Sharpe ratio test that shows that ETF returns are not positive, proportionalto the market volatility. Additionally, ETFs with the same underlying index do notperform exactly the same. It is believed that active portfolio management plays animportant role in ETFs.

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