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The article shows that prices of exchange-traded funds ETFs can deviate significantly from their net asset values NAVs , in spite of the arbitrage mechanism that allows authorized participants to create and redeem shares for the underlying portfolios. Antti Petajisto is a researcher and portfolio manager at quantPORT, a systematic multi-strategy asset manager and formerly the proprietary trading desk of Jefferies.
His academic research includes the development of the Active Share concept for quantifying active portfolio management, performance evaluation of money managers, pricing inefficiencies in exchange-traded funds, and the price impact of passive indexing strategies.
Author Response to “Deactivating Active Share”
We find that these alphas arise primarily from the disproportionate weight the Fama-French factors place on small value stocks, which have performed well, and from the CRSP value-weighted market index, which is historically a downward-biased benchmark for U. We propose small methodological changes to the Fama-French factors to eliminate the nonzero alphas, and we also propose factor models based on common and tradable benchmark indices. Both kinds of alternative models improve performance evaluation of actively managed portfolios, with the index-based models exhibiting the best performance. Development of the American Economy.
Inefficiencies in the Pricing of Exchange-Traded Funds: An Interview with Antti Petajisto
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