Lyxor develops new ETF’s performance indicator

Over the last years, ETFs have attracted a growing number of providers to the market and Lyxor has announced the development of an indicator to evaluate ETF performance.

According to the firm, in theory, ETFs following the same index should all provide very similar investment returns as they are designed to closely replicate the indices that they track. In practice, however, these returns can vary significantly.

“Fund selection is an important issue for investors and the topic has spawned an abundance of academic literature. However, these works mostly concern active fund selection and are not suitable for evaluating and comparing the performance of passive management and thereby ETFs,” Lyxor said.

Lyxor Research has developed an “ETF Efficiency Indicator”, which is a comprehensive, synthetic and accurate solution used to compare and evaluate all ETFs. This indicator combines the three most commonly used criteria to evaluate ETFs: performance relative to the benchmark; tracking error volatility and liquidity spread.

The rationale and construction of the indicator are detailed in an academic paper published by Thierry Roncalli, head of research & development at Lyxor and Professor of Finance at the Evry University, and Marlene Hassine, ETF strategist.

The academic paper can be downloaded from SSRN: http://ssrn.com/abstract=2212596

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