Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S
Exchange-Traded Funds (ETFs) is a financial instrument whose primary goal is to imitate the performance of the benchmark index while providing investors an efficient way to achieve diversified portfolio. The prices of ETFs are determined by demand and supply rather than net asset value. In order to...
| Main Author: | |
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| Format: | Dissertation (University of Nottingham only) |
| Language: | English |
| Published: |
2020
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| Online Access: | https://eprints.nottingham.ac.uk/58993/ |
| _version_ | 1848799575599480832 |
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| author | Chong, Ken Hung |
| author_facet | Chong, Ken Hung |
| author_sort | Chong, Ken Hung |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | Exchange-Traded Funds (ETFs) is a financial instrument whose primary goal is to imitate the performance of the benchmark index while providing investors an efficient way to achieve diversified portfolio. The prices of ETFs are determined by demand and supply rather than net asset value. In order to ensure ETFs to trade at prices approximate to net asset value, the arbitrage mechanism is created to eliminate any mispricing. The largest ETFs by asset class is Equity ETFs followed by Fixed Income ETFs and Commodity ETFs. Over the past ten years, the global ETF industry has recorded tremendous growth from US 300 billion to over 5.1 trillion. The rapid growth of the ETF market is attributed to the benefits of ETFs such as diversification, low management fees, trading flexibility, and tax efficiency.
There are three objectives that this research paper aims to accomplish. (1) To evaluate the performance of fund managers in tracking the Equity indices and Bond indices. (2) To examine whether Equity ETFs or Fixed Income ETFs provide better risk-adjusted return in the environment of rising federal fund rate. (3) To investigate what are the factors affecting the premium/discount for Equity ETFs and Fixed Income ETFs.
The empirical results conclude that although Equity ETFs perform better than Fixed Income ETFs in tracking their benchmark indices. The results of low tracking errors and beta (close to one) appear in both ETFs have proven that both ETFs are closely tracking their benchmark indices, indicating that the fund managers in the U.S are highly capable in tracking Equity indices and Bond indices. In addition, the Equity ETFs perform better than the Fixed Income ETFs in the period of rising federal fund rate by providing higher risk-adjusted return. Lastly, the evidence from panel regression analysis confirms that the premium/discount of Equity ETFs and Fixed Income ETFs are not affected by the same factors. The volatility, arbitrage opportunities, size, and volume are significant factors to explain the premium/discount of Equity ETFs, while only arbitrage opportunities variable is important to explain the premium/discount in Fixed Income ETFs. |
| first_indexed | 2025-11-14T20:37:51Z |
| format | Dissertation (University of Nottingham only) |
| id | nottingham-58993 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T20:37:51Z |
| publishDate | 2020 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-589932020-05-06T10:31:05Z https://eprints.nottingham.ac.uk/58993/ Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S Chong, Ken Hung Exchange-Traded Funds (ETFs) is a financial instrument whose primary goal is to imitate the performance of the benchmark index while providing investors an efficient way to achieve diversified portfolio. The prices of ETFs are determined by demand and supply rather than net asset value. In order to ensure ETFs to trade at prices approximate to net asset value, the arbitrage mechanism is created to eliminate any mispricing. The largest ETFs by asset class is Equity ETFs followed by Fixed Income ETFs and Commodity ETFs. Over the past ten years, the global ETF industry has recorded tremendous growth from US 300 billion to over 5.1 trillion. The rapid growth of the ETF market is attributed to the benefits of ETFs such as diversification, low management fees, trading flexibility, and tax efficiency. There are three objectives that this research paper aims to accomplish. (1) To evaluate the performance of fund managers in tracking the Equity indices and Bond indices. (2) To examine whether Equity ETFs or Fixed Income ETFs provide better risk-adjusted return in the environment of rising federal fund rate. (3) To investigate what are the factors affecting the premium/discount for Equity ETFs and Fixed Income ETFs. The empirical results conclude that although Equity ETFs perform better than Fixed Income ETFs in tracking their benchmark indices. The results of low tracking errors and beta (close to one) appear in both ETFs have proven that both ETFs are closely tracking their benchmark indices, indicating that the fund managers in the U.S are highly capable in tracking Equity indices and Bond indices. In addition, the Equity ETFs perform better than the Fixed Income ETFs in the period of rising federal fund rate by providing higher risk-adjusted return. Lastly, the evidence from panel regression analysis confirms that the premium/discount of Equity ETFs and Fixed Income ETFs are not affected by the same factors. The volatility, arbitrage opportunities, size, and volume are significant factors to explain the premium/discount of Equity ETFs, while only arbitrage opportunities variable is important to explain the premium/discount in Fixed Income ETFs. 2020-02-22 Dissertation (University of Nottingham only) NonPeerReviewed application/pdf en https://eprints.nottingham.ac.uk/58993/1/MSc%20Dissertation%20%28%20Chong%20Ken%20Hung%29.pdf Chong, Ken Hung (2020) Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S. [Dissertation (University of Nottingham only)] |
| spellingShingle | Chong, Ken Hung Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S |
| title | Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S |
| title_full | Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S |
| title_fullStr | Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S |
| title_full_unstemmed | Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S |
| title_short | Performance analysis and pricing efficiency of Exchange Traded Funds(ETFs) during the interest rate hikes: the comparison between equity ETFs and fixed income ETFs in the U.S |
| title_sort | performance analysis and pricing efficiency of exchange traded funds(etfs) during the interest rate hikes: the comparison between equity etfs and fixed income etfs in the u.s |
| url | https://eprints.nottingham.ac.uk/58993/ |