Sub-additive recursive ``matching noise and biases in risk-weighted index calculation methods in incomplete markets with partially observable multi-attribute preferences

DOI10.1142/S1793830913500201MaRDI QIDQ2864863zbMATH OpenOpenAlexWikidataFDO

Authors Michael C. I. Nwogugu

Publication date 26 November 2013

Published in Discrete Mathematics, Algorithms and Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2005.01708

zbMATH Keywords

complexityasset allocationdecision analysisrisk managementindex theoryevolutionary computation

Mathematics Subject Classification ID

Financial applications of other theories (91G80)

Abstract: While Indices, Index tracking funds and ETFs have grown in popularity during then last ten years, there are many structural problems inherent in Index calculation methodologies and the legal/economic structure of ETFs. These problems raise actionable issues of Suitability and fraud under US securities laws, because most Indices and ETFs are misleading, have substantial tracking errors and dont reflect what they are supposed to track. This article contributes to the existing literature by: a) introducing and characterizing the errors and Biases inherent in risk-adjusted index weighting methods and the associated adverse effects; b) showing how these biases/effects inherent in Index calculation methods reduce social welfare, and can form the basis for harmful arbitrage activities.

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Cites work

• An economic index of riskiness
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• WHY THE RETURN NOTION MATTERS

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