RT Journal Article
SR Electronic
T1 Equity ETFs versus Index Futures: <em>A Comparison for Fully Funded Investors</em>
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 66
OP 75
DO 10.3905/jii.2014.5.2.066
VO 5
IS 2
A1 Ananth Madhavan
A1 Ursula Marchioni
A1 Wei Li
A1 Daphne Yan Du
YR 2014
UL https://pm-research.com/content/5/2/66.abstract
AB The widespread adoption of exchange traded funds (ETFs) as institutional instruments, tighter trading spreads, and lower fees mean these investment vehicles are increasingly seen by investors as a viable alternative to futures-based exposure. At the same time, the costs of maintaining a given exposure using futures contracts have increased, driven by regulation which has increased capital requirements and which restricts proprietary trading activities. This article 1) summarizes the trade-offs between the use of futures and ETFs for fully funded investors; 2) provides empirical evidence that ETFs are now, in many instances, a lower cost alternative to fully funded futures; and 3) analyses the fundamental drivers of roll mispricing, providing evidence that higher costs for futures reflects longer-run, systematic factors such as regulation that are unlikely to reverse soon.TOPICS: Exchange-traded funds and applications, futures and forward contracts, performance measurement