By Ananth N. Madhavan
"In Exchange-Traded cash and the hot Dynamics of making an investment, Ananth Madhavan examines the quiet transformation of asset administration in the course of the upward thrust of passive or index making an investment. A closely-related phenomenon is the increase of exchange-traded cash (ETFs). An ETF is an funding motor vehicle that trades intraday and seeks to duplicate the functionality of a selected index. ETFs have grown considerably in dimension, range, and industry importance in recent times. those developments have generated enormous curiosity, specially from retail and institutional traders and more and more from teachers, regulators and the click. ETFs have the facility to be a disruptive innovation to modern asset administration simply because many conventional energetic managers and hedge cash bring an important fraction in their energetic returns through static exposures to elements like worth. certainly, for the 1st time ever, resources in international ETFs passed $3 trillion in 2015, passing the quantity in hedge funds."--
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Extra info for Exchange-traded funds and the new dynamics of investing
An equivalent and intuitive representation of NAV is as exponentially weighted average of noisy estimates of current and past values where the weight on the j-lagged price is (1 − φ)φ j so ∞ that nt = (1 − φ) ∑ j=0 φ j(vt −j + w˘t −j) where w˘t = wt / (1 − φ) is the rescaled noise term. 2), any ETF premiums and discounts purely reflect transitory liquidity shocks. We might expect this to be the case in a domestic equity fund where the constituent stocks are traded very actively and the provider uses current quotations for valuation.
The transactions between an ETF manager and an AP are typically either for cash or “in-k ind” where the AP delivers or receives a basket of securities identical (or very similar) to the ETF’s holdings. 3 Like other investors, APs can buy or sell ETF shares in the secondary market exchange, but they also can purchase or redeem shares directly from the ETF if they believe there is a profit opportunity. ETFs have evolved from open-end mutual funds and closed-end funds, and their architecture represents elements of both structures.
1. By contrast, in an open-end mutual fund structure, liquidity is available at the end of the day and at NAV. 2). In a closed-end fund, capital is invested during the initial offering period and there is no subsequent opportunity for redemption. 3). 3. In the case of cash redemptions, transaction charges resulting from investing or raising the cash are absorbed by the AP and not the ETF, unlike open-ended mutual funds. Cash redemptions may be required because some ETF holdings, such as certain emerging market stocks, are subject to legal restrictions that prevent in-k ind transfers.
Exchange-traded funds and the new dynamics of investing by Ananth N. Madhavan