Investment

Advantages of exchange traded funds versus mutual funds Advantages:

a. Exchange-traded funds can be traded during the day, just as the stocks they represent while this can be done only once in a day in case of mutual fund.
b. Exchange-traded funds can be sold short and purchased on margins while mutual funds can’t be.
c. Exchange-traded funds are the most tax effective as they do not have many distributions.
d. Exchange-traded funds have a much lower transaction cost than a mutual fund.
e. Unlike mutual funds, exchange-traded funds do not require load charges, management fees and can also manage with minimum investment funds.

Disadvantages of exchange traded funds versus mutual funds

Disadvantages:
a. While mutual funds can be bought for NAV with no expense from no-loads fund, exchange-traded funds must be bought from brokers for a fee.
b. Since exchange-traded funds trade as security, their price can depart from NAV and swamp their cost advantage.

38.

To estimate the Sharpe ratio of a portfolio from a history of asset returns, we use the difference between the simple (arithmetic) average rate of return and the T-bill rate. Why not use the geometric average? Since arithmetic return ignores compounding, it is not likely to artificially inflate the annual performance of the portfolio. On the other hand, geometric return represents a compounding growth number and will artificially inflate the annual performance of the portfolio. Arifmetik daromad birikmani e'tiborsiz qoldirganligi sababli, portfelning yillik ko'rsatkichlarini sun'iy ravishda oshirib yuborish mumkin emas. Boshqa tomondan, geometrik daromad murakkab o'sish sonini ifodalaydi va portfelning yillik ko'rsatkichlarini sun'iy ravishda oshiradi.

39.

When estimating a Sharpe ratio, would it make sense to use the average excess real return that accounts for inflation?