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Risk, collateral and investor sentiment in exchange traded funds

Defense Thèse de doctorat : Univ. Genève, 2015 - GSEM 14 - 2015/09/24
Abstract 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.
Keywords Asset managementCollateralDerivativesSystemic riskInvestor sentiment
URN: urn:nbn:ch:unige-788400
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ISELI, Grégoire. Risk, collateral and investor sentiment in exchange traded funds. Université de Genève. Thèse, 2015. https://archive-ouverte.unige.ch/unige:78840

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Deposited on : 2015-12-21

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