Risk, collateral and investor sentiment in exchange traded funds

Diplôme Thèse Risk, collateral and investor sentiment in exchange traded funds eng 2015-09-24 author Iseli Grégoire 518828 director Louberge Henri 25591 10.13097/archive-ouverte/unige:78840 urn:nbn:ch:unige-788400 GSEM 14 The exchange-traded funds (ETFs) have become very popular investment vehicles among individual and institutional investors alike. However, the international agencies, amongst which the IMF and the Financial Stability Board, have warned about the potential instability issues that may arise from ETFs. This thesis contributes to our understanding of these funds. First, we describe and quantify an overlooked risk behind direct investment into ETFs. Second, we design tools and methodology to improve investment guarantees. Finally, we explore the determinants of ETF investor choices. The first chapter presents a framework to study counterparty risk and provide empirical estimates for a sample of physical and synthetic funds. We find that counterparty risk exposure is higher for swap-based ETFs, but that investors are compensated for bearing this risk. In the second chapter, we theoretically derive the optimal composition of the collateral portfolio that minimizes the counterparty risk exposure of an ETF investor. Furthermore, we find, for a sample of swap-based ETFs, that the counterparty risk exposure is significantly lower with optimal collateral portfolios than with actual collateral portfolios. Finally, we extract, in the third chapter, a novel investor sentiment measure from index option prices. Then, we empirically show that investor sentiment is related to flows entering ETFs. We also observe a correction on flows after three weeks, which is consistent with the idea that sentiment-based trading induces a slow market error correction. Asset management Collateral Derivatives Systemic risk Investor sentiment Dewey 330/650 9 Faculté d'économie et de management S false 9dadd30a-5f36-4ff1-9c54-6e656ddbbdc9 Thesis Public Thesis Gregoire Iseli September 2015 - PRINT.pdf 3123306 application/pdf openAccess Faculté d'économie et de management

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