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High frequency analysis of the EWZ ETF
The purpose of this thesis is to conduct a high frequency study of the pricing behavior and performance of an emerging market exchange traded fund relative to its benchmark index1. The thesis uses a high frequency intraday data2 set of the international EWZ ETF and its benchmark the MSCI Brazil maki...
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| Format: | Thesis |
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AUC Knowledge Fountain
2017
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| Summary: | The purpose of this thesis is to conduct a high frequency study of the pricing behavior and performance of an emerging market exchange traded fund relative to its benchmark index1. The thesis uses a high frequency intraday data2 set of the international EWZ ETF and its benchmark the MSCI Brazil making this high frequency analysis the first on an emerging market ETF. In testing the pricing behavior, the thesis first examines the price deviation of the ETF from its benchmark index. Second pricing behavior is analyzed using cointergration analysis and a Vector Error Correction Model (VECM) between the ETF and the index intraday movements as well as a Granger Causality test for robsutness. In testing performance differences between the ETF and index, a performance is measured and compared using Sharpe Ratio and persistence and the tracking error of the ETF are measured analysis is also conducted. Results showed that the prices of the index are higher on average that those of the ETF on both daily and intraday basis. Moreover, it was shown in the results that the ETF outperforms the index on intraday basis but the index outperforms the on daily basis. Also, the results displayed that there is an average daily tracking error on annual basis and that this error is persistent with a 0.12% rate. Furthermore, it was concluded that on intraday basis both the ETF and the index move to close the gap if a price deviation exists with a rate of 16.3% and 83.7% respectively, while on the other hand, on daily basis the results show that ETF doesn't affect the index at all Keywords: Exchange Traded Funds, ETFs, price deviation, performance persistence, tracking error, tracking ability, co-integration, international. |
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