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Discrete hierarchy of sizes and performances in the exchange-traded fund universe

Listed author(s):
  • Vandermarliere, B.
  • Ryckebusch, J.
  • Schoors, K.
  • Cauwels, P.
  • Sornette, D.

Using detailed statistical analyses of the size distribution of a universe of equity exchange-traded funds (ETFs), we discover a discrete hierarchy of sizes, which imprints a log-periodic structure on the probability distribution of ETF sizes that dominates the details of the asymptotic tail. This allows us to propose a classification of the studied universe of ETFs into seven size layers approximately organized according to a multiplicative ratio of 3.5 in their total market capitalization. Introducing a similarity metric generalizing the Herfindhal index, we find that the largest ETFs exhibit a significantly stronger intra-layer and inter-layer similarity compared with the smaller ETFs. Comparing the performance across the seven discerned ETF size layers, we find an inverse size effect, namely large ETFs perform significantly better than the small ones both in 2014 and 2015.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378437116308901
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Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 469 (2017)
Issue (Month): C ()
Pages: 111-123

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Handle: RePEc:eee:phsmap:v:469:y:2017:i:c:p:111-123
DOI: 10.1016/j.physa.2016.11.084
Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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  1. Malevergne, Y. & Saichev, A. & Sornette, D., 2013. "Zipf's law and maximum sustainable growth," Journal of Economic Dynamics and Control, Elsevier, vol. 37(6), pages 1195-1212.
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  4. Claudio Campanale, 2007. "Increasing Returns to Savings and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 646-675, October.
  5. Adrian Dragulescu & Victor M. Yakovenko, 2000. "Statistical mechanics of money," Papers cond-mat/0001432, arXiv.org, revised Aug 2000.
  6. Sornette, Didier, 1998. "Linear stochastic dynamics with nonlinear fractal properties," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 250(1), pages 295-314.
  7. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
  8. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  9. Orietta Marsili, 2005. "Technology and the Size Distribution of Firms: Evidence from Dutch Manufacturing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 27(4), pages 303-328, December.
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