Index Investment And The Development Of The Introduction Of Etfs And Research

On the way of the development index fund, ETFs(Exchange TradedFunds)surmounts the deficiencies of open-end fund and close-end fundfor its distinctive double-exchange mechanism and flexible exchangeways. Therefore ETFs obtains great success in the international capitalmarket. The development of capital market in China has brought about notonly the increase of investing products, but also the change in the conceptof investment. This thesis fully analyses the indexing investment idea andthe fairly successful fund product-ETFs created by this idea, and thentries to introduce the fully new passive investment idea and ETFs for thecapital market in China. The thesis has three sections. The first section analyzes the reasons for the creation of indexinginvest idea and the logic basis, and then further examines the meaning,advantages and disadvantages of indexing invest idea. This idea has thepurpose of expecting to obtain the benchmark return of a specific market. Indexing investment can fully disperse portfolio, reduce theunsystematic risk and fund broker risk, gain index return and otheradvantages, but meanwhile indexing investment also has somedisadvantages, such as track error and the deficiency of index design. The second section analyzes ETFs. Firstly it introduces the creationand development of ETFs, as well as its developing condition all over theworld. ETFs is an open-end fund in exchange. Every one unit of ETFs isa lump sun stocks. The kind of the lump sum stocks are the same as thosecontained by a specific index. The exchange price of ETFs depends onthe value of the lump sum stocks, that is "net value of unit fund asset".The idea of exchanging portfolio through an exchange process originatesfrom what is called portfolio trading or program trading(Gastineau,2001). Secondly it studies the operation mechanism of ETFs. The basicelements of ETFs contain the participating subjects, issuance &repurchase, secondly market exchange, duplicated index, duration,dividend and voting problem. ETFs provides two different ways ofexchange, similar to traditional exchange ways of close-end fund andopen-end fund. On one hand the investors can exchange ETFs in primarymarket, on the other hand in the secondary market , that is exchange. Theorganization of ETFs has three types: UIT, managed open-end investmentcompanies and grantor trusts. In America managed open-end investmentcompanies is mostly used. At last it analyses the characteristics of ETFs. ETFs is anewly-created index fund product which has the feature of open-end fundand close-end fund. Compared with actively managed fund, open-endfund, close-end fund and pure index fund, ETFs has many distinctivefeatures which especially avoids premium and discount problem ofclose-end fund. In a word, ETFs is an indexing investment tool, whichhas superiority of index exchange, such as exchange convenience, lowcost, tax efficiency and high liquidity. ETFs also has some problems asunable to duplicate basic portfolio and bid/ask spread issues. GenerallyETFs is a kind of successful innovation. The third section studies ETFs in China. The thesis supposes thepremise of developing ETFs in China is the necessity of indexinginvestment idea to China, and then discusses the problem whendeveloping ETFs in China. The indexing investment can satisfy the needsof investing products brought out by the proceeds of the long-termeconomic development in China provide security-investing products tosubstitute for saving, and channel insurance fund into stock market toexpand the source of capital market. Therefore, it is very necessary for usto introduce indexing investment idea to China. The empirical researchhas shown that security funds in China have no ability to selectopportunity. On contrary part of funds have obvious negative ability toselect opportunity. As an option, the indexing investment can obtainhigher proceed than the average level of stock-investing fund, so it can beapplied to the security market in China. The last part analyzes the realityproblem of developing ETFs in China.