A Theoretical And Empirical Research On Indexing

Pure index fund is a kind of passive fund, which use a passive instrument strategy called indexing. The construction of an optimal tracking portfolio and corresponding trade strategy which is most commensurate to the performance of target index is the key for a successful indexing. As the cognition of indexing deepen, the quantitive science such as statistics and its application in invest became more important than the traditional way of invest such as the market timing, sector selectivity and stock selectivity in the management of an index fund.The research of theory and technology of indexing in our country is just in the beginning, the major of which were on a base of qualitative research methods. In this dissertation, we carried out a theoretical and empirical research on the theory, technology and its application on our country of indexing on a base of China stock exchanges' data, with the help of statistics method such as sample theory, regress analysis, correlation analysis, time serial analysis, cluster analysis and other quantitative method. This dissertation is organized as follows. In Chapter One, we give the brief description of the framework of indexing theory and technology. We first give a review of domestic and foreign literature of indexing research. After pointing out some limitations of domestic and foreign indexing research, we present themain framework and method of our research in this dissertation.In Chapter Two, We research the problem defining suitable performanceobjectives and tracking error that scale properly over the managementperiod for an index fund.In Chapter Three, we have a theoretical and empirical study on theselection of object index for indexing and how it affects the result ofindex tracking.In Chapter Four, we have a empirical study on the four main indexreplication technology, including full replication, largest holdingreplication, stratified sampling replication, optimal replication, and thengive a detail contrast of the efficacy of the four index trackingtechnology.In Chapter Five, we use a mean-variance framework to analyze the cashmanagement problem for an index-tracking portfolio. The theoreticalmodel we set up is based on passive index tracing, but it has implicationsfor any portfolio management with an equity benchmark and random cashinflows and outflows.The major contributions of this dissertation include: (l)We presented thewhole framework of research of indexing theory and technology. (2)Wegave a empirical study on how the frequency of stock return affect themeasure and comparation of tracking error. (3)We had a research onhypothesis of invest behavior behind the indexes with different structureand methodology and how they affect the tracking error during index tracking. (4)We discussed the variance of the objective index and its effect on the tracking error on a basic of empirical analysis. (5)We carried out a comprehensive empirical study on the four main index replication technology, including full replication, largest holding replication, stratified sampling replication, optimal replication, and then give a detail contrast of the efficacy of the four index tracking technology, the conclusion of which have illumination on how to create initial tracking portfolio for an index fund. (6)We Used a mean-variance framework to analyze the cash management problem for an index-tracking portfolio, the conclusion of which can give a guidance on how to establish reasonable cash policy for an index fund.