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New Revolution in Fund Management: ETF/Index Design by Machines

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  • Jaehoon Lee

Abstract

Two ETFs were listed to track the secondary-battery industry on 12 September 2018 in the Korea Stock Exchange market. They are virtually identical except that one is designed by humans while the other is made by machines. This paper compares the two ETFs and find little difference in their investment strategies except that machines are more likely to pick high book-to-market stocks than humans. Machines are also more likely to pick past losers and outperform human-designed ETF afterwards. The results suggest that machines can do equally good as humans as ETF/index designers.

Suggested Citation

  • Jaehoon Lee, 2019. "New Revolution in Fund Management: ETF/Index Design by Machines," Global Economic Review, Taylor & Francis Journals, vol. 48(3), pages 261-272, July.
    • Handle: RePEc:taf:glecrv:v:48:y:2019:i:3:p:261-272
    DOI: 10.1080/1226508X.2019.1632217
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    Cited by:

    1. Seungho Baek & Kwan Yong Lee & Merih Uctum & Seok Hee Oh, 2020. "Robo-Advisors: Machine Learning in Trend-Following ETF Investments," Sustainability, MDPI, vol. 12(16), pages 1-15, August.

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