ETF Risk Models
Abstract
We discuss how to build ETF risk models. Our approach anchors on i) first building a multilevel (non-)binary classification/taxonomy for ETFs, which is utilized in order to define the risk factors, and ii) then building the risk models based on these risk factors by utilizing the heterotic risk model construction of https://ssrn.com/abstract=2600798 (for binary classifications) or general risk model construction of https://ssrn.com/abstract=2722093 (for non-binary classifications). We discuss how to build an ETF taxonomy using ETF constituent data. A multilevel ETF taxonomy can also be constructed by appropriately augmenting and expanding well-built and granular third-party single-level ETF groupings.
Cite
@article{arxiv.2110.07138,
title = {ETF Risk Models},
author = {Zura Kakushadze and Willie Yu},
journal= {arXiv preprint arXiv:2110.07138},
year = {2021}
}
Comments
20 pages; to appear in Bulletin of Applied Economics (in press)