ETF Database » ISI

Size Does Matter (To a Point): Study of ETF Liquidity

Michael Johnston — Thu, 11 Jun 2009 07:00:36 +0000

As the ETF industry has exploded on to the scene in recent years, sponsors have aggressively launched funds in an attempt to gain market share. While many of these new ETFs have attracted sufficient investor funds to justify continued operation, some have failed to garner a level of investment necessary to support an active, liquid market and been shuttered. And then there are those that remain in business but are cited as having “insufficient liquidity.” Although there are certain rules of thumb – assets under management (AUM) of $25 million and daily volume of 25,000 are often cited as “liquidity thresholds” – there is no hard evidence to support these guidelines. In an effort to determine where illiquidity ends and an active market begins, I analyzed the impact of size and daily volume on the liquidity of various ETFs. To start, I divided ETFs into six baskets based on three-month average daily [...]

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How Beta Got Her Groove Back

Michael Johnston — Thu, 07 May 2009 05:02:48 +0000

It’s been almost 17 years since two economists at the University of Chicago, Eugene Fama and Kenneth French, published an attack on the stock price measure of risk known as “beta,” prompting “Beta is Dead” headlines from numerous financial publications. While these obituaries may have been a bit premature (beta is still widely taught in university finance courses and widely accepted in the business valuation field), the groundbreaking article caused some irreparable damage to beta’s reputation. Now, with the recent surge in popularity of ETFs, beta has been reinvented as a metric for evaluating and comparing the efficiency of funds. A Quick Refresher For those far removed from their Finance 101 days, beta is a component of the Capital Asset Pricing Model (CAPM for short), one of the most influential theories in financial economics. Beta reflects the relative volatility of a stock – how much the price of an individual security moves up [...]

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ETF Database » ISI

Size Does Matter (To a Point): Study of ETF Liquidity

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How Beta Got Her Groove Back

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