No Need to Choose: ETFs Excess Return Versus Risk Adjusted Excess Return

Abstract

In this paper,Exchange Traded Funds (ETFs) performance estimated via excess return is compared with their performance estimated via risk adjusted excess return, both are measured relative to the underlying index performance. The analysis of88 ETFs in 2000-2012implies that there is a wide agreement between these two measures of ETFs performance. Previous research suggests that 1, as extracted from the regression of the ETFs return on their underlying index return,is a significant predictor of ETFs’ risk adjusted excess return. The analysis results suggest that 1 also successfully identifies ETFs that achieve positive excess returns.

Keywords

• ETFs,passive investment,performance evaluation.

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