PT  - JOURNAL ARTICLE
AU  - Ananth Madhavan
AU  - Ursula Marchioni
AU  - Wei Li
AU  - Daphne Yan Du
TI  - Equity ETFs versus Index Futures: <em>A Comparison for Fully Funded Investors</em>
AID  - 10.3905/jii.2014.5.2.066
DP  - 2014 Aug 31
TA  - The Journal of Index Investing
PG  - 66--75
VI  - 5
IP  - 2
4099  - https://pm-research.com/content/5/2/66.short
4100  - https://pm-research.com/content/5/2/66.full
AB  - The widespread adoption of exchange traded funds (ETFs) as institutional instruments, tighter trading spreads, and lower fees mean these investment vehicles are increasingly seen by investors as a viable alternative to futures-based exposure. At the same time, the costs of maintaining a given exposure using futures contracts have increased, driven by regulation which has increased capital requirements and which restricts proprietary trading activities. This article 1) summarizes the trade-offs between the use of futures and ETFs for fully funded investors; 2) provides empirical evidence that ETFs are now, in many instances, a lower cost alternative to fully funded futures; and 3) analyses the fundamental drivers of roll mispricing, providing evidence that higher costs for futures reflects longer-run, systematic factors such as regulation that are unlikely to reverse soon.TOPICS: Exchange-traded funds and applications, futures and forward contracts, performance measurement