Performance comparison between exchange-traded funds and closed-end country funds |
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| Institution: | 1. Faculty of Management and Economics, Gdansk University of Technology, Narutowicza 11/12, 80-233 Gdansk, Poland;2. Faculty of Management and Economics, Gdansk University of Technology, Poland;1. Associate Professor of Finance, College of Business, 2700 Bay Area Blvd., Box 70, University of Houston – Clear Lake, Houston, TX, 77058, USA;2. Professor of Finance, Department of Finance, MSC 3FIN, College of Business, P.O. BOX 30001, New Mexico State University, Las Cruces, NM 88003, USA |
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| Abstract: | The objective of this study is to compare the risk and return performance of exchange-traded funds (ETFs) available for foreign markets and closed-end country funds. We utilize 29 closed-end country funds (CEFs) for 14 countries over the sample period from April 1996 to December 2001. The performance proxies are mean returns and risk-adjusted returns. Results indicate that ETFs exhibit higher mean returns and higher Sharpe ratios than foreign closed-end funds, while CEFs exhibit negative alphas. This indicates that a passive investment strategy utilizing ETFs may be superior to an active investment strategy using CEFs. The findings reported here offer some insight on the relative advantages of each type of investment. Specifically, there may be some potential for additional types of ETFs that offer higher risk-adjusted returns than closed-end funds. Such ETFs may be able to offer higher risk-adjusted returns as part of an internationally diversified portfolio. |
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