primary (over the counter basis)

secondary

closely track the index

charge lower fees than mutual funds

periodic tracking

tracking error source

distribute less in capital gains than mutual fund

last year

bid-ask spread (liq, spread-)

transaction cost

end-of-day

intra-of-day

Generating factors: time difference; stale pricing (trade infrequently)

When ETF trading at premium (share price>iNAV) to intra NAV, AP buy creation basket, return to stock, sell in secondary market

p30 table

settlement risk

ETN

regulation; cpmpetition; corporate action; soft termination: (creation halts; change in investment strategy)

λ:factor risk permium/factor price

Ri=E(Ri) b1F1 b2F2 .. ξ

Regression: time series; find bi based on F

Ri=ai b1F1 ..ξ

Regression: cross-sectional data

b: How many units does the true value deviate from the mean; F: How much does the return rate change for each unit of deviation?

advantage

shortcoming

source

Standard deviation of active return: S(Rp-Rb)

mean active return/active risk

rules-based active management

Minimum loss under small probability, maximum loss under high probability

failure to take into account liquidity; underestimate the loss

conditional VaR(ave loss);incremental VaR;Marginal VaR;Relative VaR

assumption: normal distribution

VaR=|Rp-z*ξ|*Vp

Advantages and Disadvantages

advantage

shortcoming

The greater the number, the closer it is to a normal distribution.

Disadvantages: Costly, complex process, subjective

historical

hypothetical

Advantages: Comparison of specific features. Disadvantages: Different features cannot be compared

drawdown;surplus at risk;

risk budgeting;position limits;liquidity limits;stop-loss limits;economic capital

real default-free bond(TIPs):P0U0 and U1(consumption theory)

m=p0=U1/U0:Inter-temporal rate of substitution

one period

s-period

relationship

nominal interest rate

θ ∏:break-even inflation rate(BEI)

short term

long term

credit spread=yield on corporate bond-yield on gov bond

Influencing factors

the equity premium relative to credit risky bonds

good consumption hedge:gold, short-term U.S. dollar treasury bonds

liquidity premium

real-estate:both bond-like and stock-like

Security selection in the picture above

Asset allocation in the picture below

Overweighting and underweighting cash (rf related) does not affect sharp ratio

Over-configuring or under-configuring benchmarks does not affect the unconstrained information ratio

Under optimal conditions, SR squared p=SR squared b IR

Under the optimal combination, σA new =IRp/SRb*σb

Wp=σA new/σA

BR, IC cannot rise alone

TC can rise independently

correlation between the forcasted active returns and the realized active return

correlation between active weight and forcasted active return

basic (full) fundamental law, perfect market TC=1 (TC is not equal to 1)

TC square=explained/total variation

BR=N/[1 (N-1)ρ]

fixed

variable (related to volume)

market bid-ask spread (inside spread)

midquote price=(bid ask)/2

Basic

effective spread

implementation shortfall

VWAP

same instrument in multiple venues

high-frequency traders (place more orders) VS low-latency traders

major type:5

wash trading reverse position