Index Tracking and Enhanced Indexing Using Co-integration and Correlation Approaches

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EYVAZLU REZA; Shafizadeh Mojtaba; GHAHRAMANI ALI

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Journal: FINANCIAL RESEARCH Year:2017 | Volume:19 | Issue:3 Page(s): 457-474

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Information Journal Paper

Title

Index Tracking and Enhanced Indexing Using Co-integration and Correlation Approaches

Author(s)

EYVAZLU REZA | Shafizadeh Mojtaba | GHAHRAMANI ALI | Issue Writer Certificate

Keywords

Co-integrationQ1

CorrelationQ1

Enhanced indexingQ2

Index trackingQ2

Tracking errorQ2

Abstract

Index tracking is a passive investment which aims to form portfolio with a limited number of stocks to catch the same behavior in regard with the market index. The active portfolio management seeks to outpace the market while the passive portfolio management is looking for the similar risk-return pattern regarding the market index. The passive portfolio management has increasingly attracted the attention of investors because of its lower costs. In this research, Co-integration and Correlation approaches are used for Index tracking and Enhanced indexing. Our benchmark index is Tehran Exchange Dividend & Price Index (TEDPIX). Out-sample results showed that any increase of in-sample time period will improve the performance of the models. In addition, considering Tracking error, cointegration approach has proved to have a better performance than the Correlation approach. On the other hand, considering portfolio returns and data and sharp ratios, the performance of the model for Index tracking is better than the performance of the Enhanced indexing model.

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APA: Copy

EYVAZLU, REZA, Shafizadeh, Mojtaba, & GHAHRAMANI, ALI. (2017). Index Tracking and Enhanced Indexing Using Co-integration and Correlation Approaches. FINANCIAL RESEARCH, 19(3 ), 457-474. SID. https://sid.ir/paper/91127/en

Vancouver: Copy

EYVAZLU REZA, Shafizadeh Mojtaba, GHAHRAMANI ALI. Index Tracking and Enhanced Indexing Using Co-integration and Correlation Approaches. FINANCIAL RESEARCH[Internet]. 2017;19(3 ):457-474. Available from: https://sid.ir/paper/91127/en

IEEE: Copy

REZA EYVAZLU, Mojtaba Shafizadeh, and ALI GHAHRAMANI, “Index Tracking and Enhanced Indexing Using Co-integration and Correlation Approaches,” FINANCIAL RESEARCH, vol. 19, no. 3 , pp. 457–474, 2017, [Online]. Available: https://sid.ir/paper/91127/en

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