Study On The Structure And Optimization Of Enhanced Index Funds

In recent years,the investment strategy using the replication index as an asset allocation has rapidly developed.More and more investors have combined active investment with indexed investment,and an aggressive indexed investment model has been born.Enhanced index funds are generated by the combination of active investment and passive investment strategies.Enhanced index fund is a kind of fund product which uses index optimization as an investment method to obtain the target income beyond the goal,and uses the tracking error to measure the degree of closeness between the portfolio and the indexed index return.The paper choose LASSO variable selection and the multi-factor stock selec-tion model scoring method that is popular in the securities market to complete the selection of constituent stocks of the enhanced index fund.The paper combines the minimization of tracking error to obtain the optimal weight of the enhanced index fund to construct an enhanced index fund,and compares the return analysis of enhanced index funds constructed by the two methods.Meantime,we analyze the constructed the constructed enhanced index funds by using three common in-dicators of excess fund return,tracking error,and information ratio which are used to measure fund performance.Furthermore,GARCH-M model is used to study the risk aversion of investors to enhanced index funds.In addition,the optimal model of structural enhanced index fund is obtained by analyzing the degree of aversion of the index and the construction of the enhanced index fund.The paper takes the Shanghai and Shenzhen 300 Index in the Chinese securi-ties market as an object to conduct empirical research.The research results show that the enhanced index fund based on the LASSO variable selection construction performs more advantages than the enhanced index fund constructed by the more popular multi-factor stock picking model in the market.When using the three core indicators of fund performance to evaluate enhanced index funds,we find that the excess returns and information ratios of enhanced index funds based on LASSO variable selection construction are better than those of enhanced index funds con-structed based on multi-factor model.Using the GARCH-M model to characterize investor risk aversion of enhanced index funds.Futhermore,it can be seen that the change of risk aversion of enhanced index fund investors based on LASSO variable selection construction is in accordance with the psychological changes of investors in real life.The paper considers that the enhanced index funds based on LASSO variable selection has more advantage than those based on multi-factor model.