Research On Performance Evaluation Of Exchange Traded Funds(ETFs) In China

ETF, which is short for the Exchange Traded Fund, is a new investment tool built in 1990s. The first ETF in China was established on Dec 30th,2004. Up to Apr 21st, 2011,23 ETFs were set up in China, and 22 of them have been listed in Shanghai or Shenzhen Exchanges. The developing speed is somehow slow. ETF is still a new-born thing to most investors. How to evaluate the performance of ETF? How to choose the best ETF for oneself based on the evaluation? These are crucial problems to be solved when we want to encourage more investors to participate in ETF market.This dissertation is focusing on ETFs as the research object. We begin with the develop history of ETFs in those developed countries, as well as the present situation in China. Then we use the system of performance evaluation for mutual funds and open-listed mutual funds for reference, making some modifications according to the unique characteristics of ETFs. We evaluate the performance of ETF from two points of view:the first is about the revenue and risk, and the second is the market performance. For the first point of view, we refused to use its revenue and risk to evaluate directly; instead, we use the difference between revenue of ETF and that of underlying index as the indicator of "revenue", and the variation of the difference as the indicator of "risk". For the second point of view, the market performance, we decide to use the discount/premium ratio and liquidity level just like the evaluation of open-listed funds do. Furthermore, we discuss whether the new-built evaluation system is suitable by the evaluation demands from investors. ETF would be welcomed by two kinds of investors -long term investors and arbitraging investors. The former investors invest on ETF for the almost same revenue ratio as the underlying index, so they pay more attention to the management efficiency, which can be concluded with tracking difference and tracking error. While the latter investors care about arbitraging efficiency more. We analyzed four kinds of ETF arbitraging behaviors, and realized that discount/premium ratio and liquidity level are able to evaluate the efficiency of arbitrages. After that, we review the measurement of the four indicators, and construct a new indicator for liquidity level. We then make empirical researches based on both high and low frequency data of the 22 ETFs, evaluating performance of each ETF on each indicator. And we further analyzed the overall performance, developing trends and underlying problems of China's ETF market, with suggestions about regulation and development, as we wish to provide reference to those who make policy and mechanism.