Effects of Macro Economic indicators on EFT investments

Specialeforsvar ved Anders Brilner Lund

Titel: Effects of Macro Economic indicators on ETF investments

Abstract: In this thesis we investigate if ETF investors can improve their return and other metrics of a initial portfolio choice and following reinvestment, by using the VIX option and TED spread as leading indicators. First it is tested if these indicators have a significant predictive power with respect to Fama & Frenchs industry portfolios. Here it is found that relative changes, i.e. returns of the indicators have the best correlation with ETFs. Then a statistical bootstrapping method which employ a indicator are used to generate model prediction scenarios. The performance of the statistical bootstrapping method and the individual indicators are then evaluated by using both a Maximum Sharpe ratio and CVaR optimisation model and compared to a standard bootstrapping method’s results using the same optimisation models. The statistical method is found to, depending the indicator, produce at least as good returns and volatility while requiring less trading than the standard bootstrapping method. It is also found that scenarios generated with the statistical method have less wide distributions, which leads to reduced CVaR estimates.

Vejledere: Rolf Poulsen,  Kourosh Marjani Rasmussen, DTU
Censor:     Cathrine Jacobsen, ATP