IMPLEMENTATION OF ALTERNATIVE INDEX WEIGHTING TO WARSAW STOCK EXCHANGE

Kamil Nowak

DOI: http://dx.doi.org/10.12775/CJFA.2016.021

Abstract


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.


Keywords


Smart Beta; Alternative indexing; Quantitative weighting; ETF

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