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Implementation Of Alternative Index Weighting To Warsaw Stock Exchange

Author

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  • Kamil Nowak

    (Nicolaus Copernicus University)

Abstract

Exchange Traded Funds are the fastest growing segment of investment management business. Over last eleven years ETF’s AUM grew over 2,000% This paper explores growing popularity of this investment vehicle and getting to the genesis of index tracking funds and to the roots of indexing, bares shortcomings of most common weighting scheme – capitalization weighting. Those flaws caused the rise of quantitative investing. The author reviews the literature in search of the most relevant Smart Beta definition and the reasons why this new investment concept is blooming nowadays. The substance of this paper is presentation of most popular alternative weighting schemes and exploration of their pros and cons by implementing those solutions to polish index WIG20. The impact of alternative weighting on performance of the index and its features has been synthesized and evaluated. In the result of this analyses and comparison cap-weighted WIG20 turned out to be the less effective weighting scheme.

Suggested Citation

  • Kamil Nowak, 2016. "Implementation Of Alternative Index Weighting To Warsaw Stock Exchange," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 5(2), pages 163-179.
    • Handle: RePEc:cpn:umkcjf:v:5:y:2016:i:2:p:163-179
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    File URL: https://apcz.umk.pl/CJFA/article/view/CJFA.2016.021/11424
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    References listed on IDEAS

    as
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    5. Blitz, D.C. & van Vliet, P., 2007. "The Volatility Effect: Lower Risk without Lower Return," ERIM Report Series Research in Management ERS-2007-044-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
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    Cited by:

    1. Reema Monga & Deepti Aggrawal & Jagvinder Singh, 2022. "Exploring new frontiers in indexing strategies: an optimization-based risk-efficient solution," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(2), pages 853-865, June.
    2. Davor Zoričić & Denis Dolinar & Zrinka Lovretin Golubić, 2020. "Factor-Based Optimization of a Fundamentally-Weighted Portfolio in the Illiquid and Undeveloped Stock Market," JRFM, MDPI, vol. 13(12), pages 1-12, December.
    3. Kamil Nowak, 2017. "Low Cost Retirement Solutions Based On Robo-Advisors And Exchange Traded Funds," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 6(3), pages 75-94.

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