IMPLEMENTATION OF ALTERNATIVE INDEX WEIGHTING TO WARSAW STOCK EXCHANGE
DOI:
https://doi.org/10.12775/CJFA.2016.021Keywords
Smart Beta, Alternative indexing, Quantitative weighting, ETFAbstract
Exchange Traded Funds are the fastest growing segment of investment management business. Over last eleven years ETF’s AUM grew over 2,000% This paper explores growing popularity of this investment vehicle and getting to the genesis of index tracking funds and to the roots of indexing, bares shortcomings of most common weighting scheme – capitalization weighting. Those flaws caused the rise of quantitative investing. The author reviews the literature in search of the most relevant Smart Beta definition and the reasons why this new investment concept is blooming nowadays. The substance of this paper is presentation of most popular alternative weighting schemes and exploration of their pros and cons by implementing those solutions to polish index WIG20. The impact of alternative weighting on performance of the index and its features has been synthesized and evaluated. In the result of this analyses and comparison cap-weighted WIG20 turned out to be the less effective weighting scheme.
References
Amenc, N., Goltz, F., Le Sourd, V. (2008). Fundamental differences? Comparing alternative index weighting mechanisms. EDHEC-Risk Institute Publication.
Amenc, N., Goltz, F., Martellini, L., Retkovsky, P. (2010). Efficient Indexation: An Alternative to Cap-Weighted Indices. EDHEC-Risk Institute Publication.
Amenc, N., Goltz, F., Martellini, L. (2013). Smart Beta 2.0. EDHEC-Risk Institute Publication.
Ang, A., Hodrick, R., Xing, Y., & Zhang, X. (2006). The Cross-Section of Volatility and Expected Returns. The Journal of Finance, 61 (1). doi: http://dx.doi.org/10.1111/ j.1540-6261.2006.00836.x.
Arnott, R., Kalesnik, V., Moghtader, P., & Scholl, C. (2010). Beyond Cap Weighting. The empirical evidence for a diversified beta. Journal of Indexes, February 2010.
Autier, B., McGlone, M., Channig, A. (2016). Smart Beta 2.0. Bringing clarity to equity smart beta. ETF Securities.
Blitz, D., & Van Vilet, P. (2007). The volatility effect: Lower risk without lower return. Journal of Portfolio Management, 102–113. doi: http://dx.doi.org/10.3905/ jpm.2007.698039.
Carhart, M. (1997). On Persistence in Mutual Fund Performance. The Journal of Finance, 52, 57–82. doi: http://dx.doi.org/10.1111/j.1540-6261.1997.tb03808.x.
Fama, E.F., & French, K.R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3. doi: http://dx.doi.org/10.1016/0304- 405X(93)90023-5.
Goltz, F., & Le Sourd, V. (2010). Does finance theory make the case for capitalisationweighted indexing? EDHEC-Risk Institute Publication.
Hill, J., Nadig, D., Hougan, M. (2015). A Comprehensive Guide to Exchange-Traded Funds (ETFs). CFA Institute.
Jajuga, K., Jajuga, T. (2004). Inwestycje: instrumenty finansowe, ryzyko finansowe, inżynieria finansowa. Warszawa: Wydawnictw Naukowe PWN.
Malkiel, B. (2011). A Random Walk Down Wall Street. The Best Investment Tactic for the New Century, Norton & Company.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7 (1), 77–91. doi: http://dx.doi.org/10.1111/j.1540-6261.1952.tb01525.x.
Sharpe, W. F. (1966). Mutual Fund Performance. Journal of Business, 39 (S1), 119–138. doi: http://dx.doi.org/10.1086/294846.
Shores, S. (2015). Smart Beta: Defining the Opportunity and Solutions. BlackRock.
www.etfgi.com (accessed: 24.07.2016).
www.etfdb.com (accessed: 24.07.2f016).
Downloads
Published
How to Cite
Issue
Section
Stats
Number of views and downloads: 754
Number of citations: 0
