Investment Performance of ETPs Related to Crude Oil

The unprecedented COVID-19 pandemic at the beginning of 2020 jeopardized the entire world. Meanwhile, the Russia–Saudi Arabia oil war led a crude oil market going out of the frying pan into the fire. This research has two main purposes. First, we investigate structures of the crude oil related exchange-traded products (ETPs) in terms of operation and cost. Second, we analyze the correlation and investment performance of the crude oil related ETPs and West Texas Intermediate spot market. The major findings are as follows: (1) there is a positive correlation between the crude oil spot and the crude oil producing firm, (2) the investment performance of the crude oil related ETPs is inferior to that of the crude oil spot due to the rollover cost, (3) the investment performance of the crude oil related leverage ETNs (Exchange-Traded Notes) or inverse ETPs has deteriorated because their managing structure tracks the daily return which leads to the compounding effects. These empirical results show the characteristics of the gain and loss of the crude oil-related ETPs, which enhance conceptual understanding and offer implications to policymakers and authorities for the efficiency of the alternative investment strategy.

Investment Performance of ETPs Related to Crude Oil

The unprecedented COVID-19 pandemic at the beginning of 2020 jeopardized the entire world. Meanwhile, the Russia–Saudi Arabia oil war led a crude oil market going out of the frying pan into the fire. This research has two main purposes. First, we investigate structures of the crude oil related exchange-traded products (ETPs) in terms of operation and cost. Second, we analyze the correlation and investment performance of the crude oil related ETPs and West Texas Intermediate spot market. The major findings are as follows: (1) there is a positive correlation between the crude oil spot and the crude oil producing firm, (2) the investment performance of the crude oil related ETPs is inferior to that of the crude oil spot due to the rollover cost, (3) the investment performance of the crude oil related leverage ETNs (Exchange-Traded Notes) or inverse ETPs has deteriorated because their managing structure tracks the daily return which leads to the compounding effects. These empirical results show the characteristics of the gain and loss of the crude oil-related ETPs, which enhance conceptual understanding and offer implications to policymakers and authorities for the efficiency of the alternative investment strategy.

VIX VERSUS VXX: A JOINT ANALYTICAL FRAMEWORK

We propose a framework for modeling in a consistent manner the VIX index and the VXX, an exchange-traded note written on the VIX. Our study enables to link the properties of VXX to those of the VIX in a tractable way. In particular, we quantify the systematic loss observed empirically for VXX when the VIX futures term-structure is in contango and we derive option prices, implied volatilities and skews of VXX from those of VIX in infinitesimal developments. We also perform a calibration on real data which highlights the flexibility of our model in fitting the futures and the vanilla options market of VIX and VXX. Our framework can be used to model other exchange-traded notes on the VIX as well as any market where exchange-traded notes have been introduced on a reference index, hence providing tools to better anticipate and quantify systematic behavior of an exchange-traded note with respect to the underlying index.

THE SPILLOVER AND LEVERAGE EFFECTS OF EQUITY EXCHANGE-TRADED NOTES (ETNS)

This research utilizes the Autoregressive Moving Average–General Autoregressive Conditional Heteroskedasticity (ARMA–GARCH) and Autoregressive Moving Average–Exponential General Autoregressive Conditional Heteroskedasticity (ARMA–EGARCH) in studying the spillover and leverage effects of returns and volatilities of seven equity exchange-traded notes (ETNs) and their tracked stock indices. This study finds positive returns transmissions between the two investment instruments. Unilateral influence and bilateral relationships also exist that may help investors in finding investment clues to approximate possible movements of ETNs about stock indices and vice versa. This paper also observes negative returns and volatility transmissions that may caution traders in the possible reversal of movement of the other instrument. Disinvestments, transfer of allocation, and inverse investing strategies are some of the possible reasons attributable to this negative relation.

Exchange-traded products in Germany: development and substitution of exchange-traded funds, exchange-traded commodities and exchange-traded notes

Research background: Exchange-traded products (ETPs) are one of the most rapidly growing categories of financial products. Their fast development has been boosted by innovative features. Three main categories of ETPs are exchange-traded funds (ETFs), exchange-traded commodities (ETCs) and exchange-traded notes (ETNs). ETCs and ETNs remain least known, even though their number on some stock exchanges is high. In Europe, Germany is one of the largest and most active ETPs markets. ETCs and ETNs are debt instruments, in contrast with the most popular ETFs, which are equity securities. Therefore, they offer investors different advantages, but also expose them to other types of risks. Purpose of the article: The key aim of the article is to present the features of ETPs and to provide in-depth insight into the issues linked with the development of ETPs market in Germany, with the special emphasis on the ETCs and ETNs. Methods: In the main empirical part of the article, German ETPs market is analyzed using descriptive statistics and technological substitution framework (employed for the analysis of innovations in order to evaluate the changing market shares of, first, ETFs versus ETCs and ETNs, as well as, second, ETFs versus other types of investment funds). The period of the analysis is 2010–2016 in the former case and 2007–2016 in the latter. Findings & Value added: Share of ETPs other than ETFs in the total market in Germany remains low. Even though the market position of the leading products, i.e. ETFs, is still very strong, some substitution has been observed, especially after 2015. Predictions indicate that this trend will continue in the upcoming years. The results of the analysis of the investment funds’ market confirm the substitution between ETFs and traditional investment funds over 2007–2017, in particular in the first years of this time period.

Financial ETNs and Certificates on Nordic Power Contracts

This article presents the first description and analysis of the exchange-traded notes (ETNs) and certificates tracking the Nordic power futures market that enable retail investors to hedge and trade on the Oslo and Stockholm Nordic stock exchanges. We investigate the impacts of the underlying front-quarter futures contract, its daily change, the roll cost, the EUR/NOK and EUR/SEK exchange rates, and the interest rate level and fees on the ETNs and certificates. An analysis of the ETNs and certificates on the Nordic stock exchanges from December 2010 to February 2015 shows continual investment activity, even though prices were in a consistent downtrend during the period. We conclude with a description of some strategies which retail investors can use.