A performance analysis of conventional and fundamental exchange traded funds: ETFs and their risk-return characteristics in relation to building institutional investor’s passive portfolio

An exchange traded fund (ETF) is a financial instrument that tracks some predetermined index. Since their initial establishment in 1993, ETFs have grown in importance in the field of passive investing. The main reason for the growth of the ETF industry is that ETFs combine benefits of stock investing and mutual fund investing. Although ETFs resemble mutual funds in many ways, also many differences occur. In addition, ETFs not only differ from mutual funds but also differ among each other. ETFs can be divided into two categories, i.e. market capitalisation ETFs and fundamental (or strategic) ETFs, and further into subcategories depending on their fundament basis. ETFs are a useful tool for diversification especially for a long-term investor. Although the economic importance of ETFs has risen drastically during the past 25 years, the differences and risk-return characteristics of fundamental ETFs have yet been rather unstudied area. In effect, no previous research on market capitalisation and fundamental ETFs was found during the research process. For its part, this thesis seeks to fill this research gap. The studied data consist of 50 market capitalisation ETFs and 50 fundamental ETFs. The fundaments, on which the indices that the fundamental ETFs track, were not limited nor segregated into subsections. The two types of ETFs were studied at an aggregate level as two different research groups. The dataset ranges from June 2006 to December 2014 with 103 monthly observations. The data was gathered using Bloomberg Terminal. The analysis was conducted as an econometric performance analysis. In addition to other econometric measures, the methods that were used in the performance analysis included modified Value-at-Risk, modified Sharpe ratio and Treynor ratio. The results supported the hypothesis that passive market capitalisation ETFs outperform active fundamental ETFs in terms of risk-adjusted returns, though the difference is rather small. Nevertheless, when taking into account the higher overall trading costs of the fundamental ETFs, the underperformance gap widens. According to the research results, market capitalisation ETFs are a recommendable diversification instrument for a long-term investor. In addition to better risk-adjusted returns, passive ETFs are more transparent and the bases of their underlying indices are simpler than those of fundamental ETFs. ETFs are still a young financial innovation and hence data is scarcely available. On future research, it would be valuable to research the differences in risk-adjusted returns also between the subsections of fundamental ETFs.

Reserve mobilization during imbibition of stored Gliricidia sepium (Jacq.) Steud. (Leguminosae - Papilionoideae) seeds

Gliricidia sepium is a drought-tolerant species, easily multiplied by seeds, and has been exploited by farmers as a source of forage in the semi-arid region of northeast Brazil. The objective of the present study was to evaluate the effect of seed storage on the mobilization of reserves during imbibition of "Gliricidia" seeds. Freshly-harvested seeds were packed in kraft paper bags and stored for three and six months in the laboratory under ambient conditions (25 º C ± 3 T and 75% ± 3 RH). Cotyledons were isolated from imbibed seeds and macerated for the extraction and quantification of total soluble sugars, reducing sugars, sucrose and starch, as well as of proteins, amino acids and for amylase activity. Storage under these conditions resulted in an increase in seed water content although germination remained at relatively high levels (86%). Seed macromolecule levels showed significant variation with the storage period and imbibition and these variations were associated with a loss in seed viability due to inadequate storage conditions.

Por que a poupança externa não promove crescimento

Why foreign saving fail to cause growth. The present paper is a formalization of the critique of the growth with foreign savings strategy. Although medium income countries are capital poor, current account deficits (foreign savings), financed either by loans or by foreign direct investments, will not usually increase the rate of capital accumulation or will have little impact on it in so far as current account deficits will be associated with appreciated exchange rates, artificially increased real wages and salaries and high consumption levels. In consequence, the rate of substitution of foreign savings for domestic savings will be relatively high, and the country will get indebted to consume, not to invest and grow. Only when there are large investment opportunities, stimulated by a sizeable difference between the expected profit rate and the long term interest rate, the marginal propensity to consume will get down enough so that the additional income originated from foreign capital flows will be used for investment rather than for consumption. In this special case, the rate of substitution of foreign for domestic savings tend to be small, and foreign savings will contribute positively to growth.

National exchange rate policies and international debt crises: how Brazil did not follow Argentina into a default in 2001-2002

This paper examines how exchange rate policies and IMF Stand-By Arrangements affect debt crises using econometrics and a comparison between Argentina and Brazil. It refines an existing diagram outlining crisis development to propose crisis prevention strategies. Flexible exchange rate policies reduce a country's probability of default by over 4%, but Stand-By Arrangements increase it by an inconsequential percentage. Unlike Argentina, Brazil avoided a default via a freely-floating exchange rate system, fiscal deficit reduction, and a cooperative and coordinated relationship with the IMF. The results provide policymakers from developing countries with lessons to manage their countries' default risks more effectively.

Uma análise da estratégia nacional de desenvolvimento da Malásia

This paper aims at studying Malaysia's national development strategy in the last three decades. Firstly, we will give emphasis to the country's economic planning development, its medium-term and long-term plans, as well as Mahathir's political influence. Secondly, we will try to identify key elements in the Malaysian growth process, such as its exchange rate and current account policies, the participation of the government in the whole process and matters related to domestic savings and foreign direct investment. We will also talk about the 1997 financial crisis.

Déficits gêmeos e poupança nacional: abordagem teórica

A consensus has not yet emerged about the relationship between budget deficit, external deficit and national saving. According to mainstream economic literature the budget deficit can cause an insufficiency of national saving for a given investment rate. In this case, the investment rate will not be reduced if foreign saving is absorbed, causing an external deficit. In general, the mechanisms through which budget deficits could cause current account deficits are not highlighted in the works about this theme. We arrive at the conclusion that there is not a systematic relationship between budget deficit, current account deficit and national saving and that when it happens it can be processed only through changes in the real exchange rate.

The Impact of Foreign Direct Investment Inflows on the Economic Growth of Bangladesh. The Roles of Infrastructural Facilities

Foreign direct investment (FDI) inflow has been a key concern for Bangladesh to obtain additional support for the economic development. The Government of Bangladesh continuously competing with other South Asian countries and putting more effort to increase the number of FDI inflows in the country. From the country’s perspective, the constant increasing rate of economic growth shows a positive outcome of FDI inflow. However, the country still not performing up to the mark to pull enough FDI inflows to its potential. Thus, this study discusses about the major determinants and factors affecting FDI inflows in Bangladesh. Among those determinants and factors, infrastructural facility is considered as the most important to affect FDI inflows. FDI inflow is fundamentally depending upon infrastructural facilities to achieve its desire success. Foreign investors take this issue very seriously because based on this they can measure their ease of doing business in the host country. Despite of providing a large market size, due to having weak and lack of infrastructural facilities, Bangladesh is facing trouble in drawing attention of the foreign investors. In order to make the infrastructural facilities happen, it is highly required to organize each of the systems under of it. The body of this study discussed about the weak infrastructures in Bangladesh such as transport and communication, power and energy, education system, and governance services. Improvement in one of these systems cannot provide valuable positive changes on FDI inflows. It requires improvement in all the weak systems to grasp multinational companies and attract foreign investors. On the basis of this research problem, research questions are established. Both qualitative and quantitative methods are used to answer the research questions. Furthermore, several theories have been applied to justify possible scenarios from the research problem. In addition, the history in between Bangladesh, trade liberalization, and FDI inflows is presented briefly.

Macroeconomia estruturalista do desenvolvimento

Structuralist development macroeconomics. This paper presents some basic ideas and models of a structuralist development macroeconomics (the tendencies to the overvaluation of the exchange rate and the tendency of wages to grow below productivity, the critique of growth with foreign savings, and a new model of the Dutch disease) that complement and actualize the thought of the Latin-American structuralist school that developed around ECLAC from the late 1940s to the 1960s. On the other hand, it suggests that a new national development strategy based on the experience of fast growing Asian countries is emerging; and argues that only the countries that adopt such strategy based on growth with domestic savings, fiscal and foreign trade responsibility and a competitive exchange rate will be able to catch up.

Static waves in corporate space : characterizing oscillating trading patterns in New York stock exchange

Various researches in the field of econophysics has shown that fluid flow have analogous phenomena in financial market behavior, the typical parallelism being delivered between energy in fluids and information on markets. However, the geometry of the manifold on which market dynamics act out their dynamics (corporate space) is not yet known. In this thesis, utilizing a Seven year time series of prices of stocks used to compute S&P500 index on the New York Stock Exchange, we have created local chart to the corporate space with the goal of finding standing waves and other soliton like patterns in the behavior of stock price deviations from the S&P500 index. By first calculating the correlation matrix of normalized stock price deviations from the S&P500 index, we have performed a local singular value decomposition over a set of four different time windows as guides to the nature of patterns that may emerge. I turns out that in almost all cases, each singular vector is essentially determined by relatively small set of companies with big positive or negative weights on that singular vector. Over particular time windows, sometimes these weights are strongly correlated with at least one industrial sector and certain sectors are more prone to fast dynamics whereas others have longer standing waves.

The Impact of Foreign Direct Investment Inflows on the Economic Growth of Bangladesh. The Roles of Infrastructural Facilities

Foreign direct investment (FDI) inflow has been a key concern for Bangladesh to obtain additional support for the economic development. The Government of Bangladesh continuously competing with other South Asian countries and putting more effort to increase the number of FDI inflows in the country. From the country’s perspective, the constant increasing rate of economic growth shows a positive outcome of FDI inflow. However, the country still not performing up to the mark to pull enough FDI inflows to its potential. Thus, this study discusses about the major determinants and factors affecting FDI inflows in Bangladesh. Among those determinants and factors, infrastructural facility is considered as the most important to affect FDI inflows. FDI inflow is fundamentally depending upon infrastructural facilities to achieve its desire success. Foreign investors take this issue very seriously because based on this they can measure their ease of doing business in the host country. Despite of providing a large market size, due to having weak and lack of infrastructural facilities, Bangladesh is facing trouble in drawing attention of the foreign investors. In order to make the infrastructural facilities happen, it is highly required to organize each of the systems under of it. The body of this study discussed about the weak infrastructures in Bangladesh such as transport and communication, power and energy, education system, and governance services. Improvement in one of these systems cannot provide valuable positive changes on FDI inflows. It requires improvement in all the weak systems to grasp multinational companies and attract foreign investors. On the basis of this research problem, research questions are established. Both qualitative and quantitative methods are used to answer the research questions. Furthermore, several theories have been applied to justify possible scenarios from the research problem. In addition, the history in between Bangladesh, trade liberalization, and FDI inflows is presented briefly

Foreign Divestment Decisions in Banking − Case Nordea in Poland

In the 21st century, the realignment of multinational companies’ business scope has become a major issue globally. A very prominent part of the global realignment process, alongside with mergers, acquisitions and alliances, are foreign divestments. Foreign divestments have become an integral aspect of international business since they are now widely practiced by MNCs from a growing and diverse range of home countries and host economies. The objective of this thesis is to identify the factors that contribute to foreign divestment decisions in the banking sector. This thesis is a qualitative research with a single case study approach. The chosen case of this thesis is the divestment made by the internationally operating Nordic financial service group, Nordea, in Poland in 2013. The empirical findings were obtained by interviewing experts from the case company and the interviews were conducted as theme interviews using the four themes that according to the theoretical framework of this thesis are the contributing factors in foreign divestment decisions: (1) environmental stability, (2) attractiveness of current operations, (3) strategic fit, and (4) governance issues. The empirical findings of this thesis suggest that there were four dominant contributors to the foreign divestment decision of the case company: (1) host government regulations, (2) strategic considerations, (3) economic outlook, and (4) interested buyer. The empirical findings mostly support the accuracy of the selected framework as the first three theme groups were found to be major contributors also in the case company’s foreign divestment. However, the importance of the fourth theme group, ‘governance issues’, is not supported by the findings of this thesis. Furthermore the findings suggest that in addition to the groups presented in the framework, also timing can be an import factor in divestment decisions. Three managerial recommendations can be drawn from the findings of this thesis: (1) If a foreign divestment decision is the best course of action due to strategic reasons, it should not be avoided; (2) The pre-investment due diligence processes should not be ignored since it can help to avoid unwanted divestments; and (3) Companies should concentrate on building good relationships with the host government since it can facilitate business activities in the host country.

Structuralist macroeconomics and the new developmentalism

This paper first presents some basic ideas and models of a structuralist development macroeconomics that complements and actualizes the ideas of the structuralist development economics that was dominant between the 1940s and the 1960s. A system of three models focusing on the exchange rate (the tendency to the cyclical overvaluation of the exchange rate, a critique of growth with foreign savings, and new a model of the Dutch disease) shows that it is not just volatile but chronically overvalued, and for that reason it is not just a macroeconomic problem; as a long term disequilibrium, it is in the core of development economics. Second, it summarizes "new developmentalism" - a sum of growth policies based on these models and on the experience of fast-growing Asian countries.