Sub-additive Recursive "matching" Noise and Biases in Risk-weighted Index Calculation Methods in Incomplete Markets With Partially Observable Multi-attribute Preferences
Year: 2013
Type: article
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 mis-leading, have substantial tracking errors and don’t reflect what they are supposed to track. This article contributes to the existing literature by: a) introducing new critiques of Index calculation methods, b) introducing and characterizing the Biases inherent in risk-weighted methods and the associated adverse effects; c) showing how these biases/effects inherent in Index calculation methods reduce social welfare, and can form the basis for harmful arbitrage activities.
Author: MICHAEL C. I. NWOGUGU
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3020948620