The Evaluation of the Short ETFs

• Main Authors: Wen-Yuan Lin, 林文元
• Other Authors: Ray Yeu-Tien Chou
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/qmby7t

碩士 === 國立交通大學 === 經營管理研究所 === 96 === Based on the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) of Bollerslev (1986) and the Dynamic Conditional Correlation (DCC) Model of Engle (2002), we investigate the tracking errors and the hedging effectiveness of each short ETF. We find that when it comes to tracking errors of Short/UltraShort ETFs related to the same benchmark, the Short ETFs of DJIA and S&P400 MidCap outperform the UltraShort ETFs of these two indices. On the contrary, the UltraShort ETF of S&P500 has the better tracking ability than the Short ETF of the S&P500. As for the cross indices comparison, the Short ETF of NASDAQ100 is the worst on tracking performance in the group of Short ETFs while the MZZ has the worst tracking ability in the group of UltraShort ETFs. Furthermore, we also examine the relationship between tracking errors and volatilities of their related index futures as well as that between tracking errors and trading volumes. We conclude that the tracking errors of DOG and DXD are affected almost equally by the volatilities of DJIA index futures while the volatilities of S&P500 (S&P400 MidCap) index futures have more influences on the tracking errors of SDS (MZZ) than on those of SH (MYY). These results coincide with the facts that the ProShares uses more index futures on UltraShort ETFs than on Short ETFs. We also find that over-trading on the shot ETFs may lead to larger tracking errors, and this effect is quite obvious regarding MYY and MZZ. Finally, we research the hedging performance of each short ETFs. We find that Short ETFs outperform UltraShort ETF when DJIA and S&P400 MidCap are concerned while the UltraShort (SDS) ETF of S&P500 has the better hedging performance than SH. Besides, the MYY has the best hedging performance among the Short ETFs when SDS has the best hedging effectiveness among the UltraShort ETFs.