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Research Article

Journal of Business and Economic Management 8(12): 452-460, December 2020
DOI: 10.15413/jbem.2020.0711
ISSN 2315-7755
2020 Academia Publishing

 

Abstract

 

Are smart beta exchange-traded funds smart? Taiwan evidence

 

Accepted 29th December, 2020

 

Jung-Chu Lin

Department of Banking and Finance, Takming University of Science and Technology, No. 56, Sec. 1, Huanshan Rd., Neihu District, Taipei, Taiwan 11451, R.O.C.


Using a sample of all the twelve Taiwan-domiciled smart beta exchange-traded funds (ETFs) targeting Taiwan’s domestic equities, the present study analyzed whether these funds out-perform their traditional capitalization-weighted benchmarks or counterparts by using two performance measures, which are Sharpe ratio and Jensen’s alpha. It selected four benchmarks, and combined them with the two performance measures to establish twelve scenarios in order to evaluate the risk-adjusted performance of the twelve smart beta ETFs relative to the passive benchmarks. The results showed that half of the twelve smart beta ETFs have beaten the benchmarks in at least 75% or more scenarios. Yet three smart beta ETFs consistently underperformed the benchmarks in any scenario. This research concludes that smart beta ETFs are not all smart, and investors must select investment targets carefully.

Key words: Smart beta exchange-traded fund, Taiwan, risk-adjusted return, Sharpe ratio, Jensen’s alpha, out performance.

 

This is an open access article published under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Cite this article as:

Lin JC (2020). Are smart beta exchange-traded funds smart? Taiwan evidence. J. Bus. Econ. Manag. 8(12): 452-460.

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