A Quantitative Comparison of the Financial Returns of Index ETFs and Matched Index Mutual Funds

Abstract: 

Investments in exchange traded funds (ETFs) have gained significant popularity among the financial investors. ETFs track industry-based indexes. Index mutual funds also track industry-based indexes. The financial investors do not have a documented analytical method to compare the financial returns of index ETFs and matched index funds. We have performed quantitative comparisons of the financial returns of index ETFs and matched index mutual funds with the use of nonparametric Kruskal-Wallis hypotheses tests, assuming that the financial returns of index ETFs and matched index mutual funds are independent. We have tested the null hypotheses that the medians of the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of the S&P 500 index, large cap index, mid cap index, small cap growth index, REIT index, and total bond market index ETFs are as the same as the medians of the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of the matched S&P 500 index, large cap index, mid cap index, small cap growth index, REIT index, and total bond market index mutual funds. The time periods of comparison have been from the inception dates of ETFs till the end of 2013. The findings from this research work suggest that we do not reject the null hypotheses that the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of index ETFs and the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of matched index mutual funds have the same medians during the time periods that we have tested.

This publication has been peer reviewed.
Publication Type: 
Journal Article
Year of Publication: 
2014
Journal, Book, Magazine or Other Publication Title: 
International Journal of Business and Management
Volume: 
9
Issue: 
7
Pages: 
10-18
Date Published: 
Sunday, June 22, 2014
Publication Language: 
English
ISSN Number: 
1833-3850
DOI: 
10.5539/ijbm.v9n7p10
Boyer's Domain: 

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