Search Results (109)

Portfolio optimization demands simultaneous consideration of multiple conflicting criteria under uncertainty, yet prevailing approaches either rely on some black-box machine learning (ML) models that sacrifice interpretability or employ classical multi-criteria decision-making (MCDM) methods lacking predictive foresight. This paper proposes a two-stage framework integrating a Transformer encoder for multi-output financial forecasting with the Peer-Prediction Trees for MCDM (PPT-MCDM) method for dynamic asset ranking and portfolio construction. The Transformer generates forward-looking predictions of next-period return, volatility, and maximum drawdown, while PPT-MCDM ranks assets by their excess performance index (EPI), measuring how much each asset’s multi-criteria profile exceeds data-driven peer expectations. The framework is validated on 28 sector and thematic exchange-traded funds (ETFs) over a 51-month out-of-sample period from January 2022 to March 2026. The PPT-MCDM portfolio achieves an annualized return of 11.99% with a Sharpe ratio of 0.589 and maximum drawdown of 18.80%, compared to the S&P 500 benchmark delivering 9.16% return, Sharpe ratio of 0.391, and maximum drawdown of 20.25%. An ablation study confirms that Transformer predictions improve the Sharpe ratio by 39.9% relative to using only observed backward-looking criteria. The main contributions of this work are three-fold: first, the development of a two-stage framework integrating deep learning forecasting with interpretable MCDM-based portfolio ranking; second, the first application of PPT-MCDM method to dynamic portfolio optimization with expanding-window retraining; third, empirical evidence that the framework outperforms the S&P 500 on both return and risk-adjusted metrics during a period encompassing both bear and bull market conditions. Full article

The rapid growth of environmental, social, and governance (ESG) investing has intensified the debate regarding whether ESG-oriented investment strategies exhibit performance patterns that differ from those of conventional investments, particularly during periods of market disruption. This study examines the risk-adjusted performance of ESG-oriented and non-ESG exchange-traded funds (ETFs) across market regimes surrounding the COVID-19 shock. The analysis classifies 28 passively managed ETFs into four sustainability-based categories and evaluates their performance using factor-based asset pricing models derived from the Fama–French framework. Additional analyses assess benchmark-relative performance using the S&P 500 and MSCI World indices and consider alternative ETF classifications based on investment mandates. The study estimates regime-specific regressions for the pre-COVID, COVID, and post-COVID periods. The results indicate that performance patterns vary across market regimes and ETF categories. Non-ESG ETFs tend to underperform on a risk-adjusted basis during the pre-COVID period, although this effect disappears thereafter. ESG-oriented ETFs generally exhibit limited evidence of abnormal performance, while factor exposures vary across regimes, reflecting changes in sector composition and macro-financial conditions. The findings suggest that, in addition to ESG orientation, market regimes and sectoral exposures play an important role in explaining differences in ETF performance. Full article

This study examines whether retail social media sentiment and community attention explain daily net capital flows into U.S. spot Bitcoin exchange-traded funds (ETFs), and whether issuer brand visibility conditions that relationship. We construct a balanced panel of $N=10$ ETFs over $T=514$ trading days (January 2024 to January 2026) and combine it with 162,819 cleaned Reddit posts to derive three AI-driven discourse variables: engagement-weighted sentiment, community attention, and a novel issuer-specific BrandScore. Entity fixed-effects regressions show that neither aggregate sentiment nor BrandScore level alone significantly predicts fund-level flows; however, the Sentiment $\times$ BrandScore interaction is significant ($\widehat{\beta }=2.930$, $p=0.038$), indicating that sentiment becomes economically meaningful only when attached to a visible issuer. This interaction survives two-way (entity + date) fixed effects ($p=0.012$) and winsorization ($p=0.004$). Panel quantile regressions reveal distributional heterogeneity in the brand-sentiment channel. Rolling 90-day window estimation confirms the mechanism is episodic, with the interaction achieving significance in 62.8% of subsample windows. These results provide suggestive evidence for a brand-filtered sentiment transmission mechanism in digital asset markets. Full article

Accurate price forecasting and portfolio optimization in emerging financial markets remain challenging due to the non-stationary dynamics, structural breaks, and heterogeneous behavior of traded instruments. This paper proposes the Time-series Adaptive Forecast Ensemble (TAFE), a method that combines single popular forecasting methods, such as ARIMA, by using an algorithm derived from both the simulated annealing (SA) and Threshold Accepting algorithms. The TAFE is applied to twenty-four weekly price series of Mexican exchange-traded funds (ETFs) and Real Estate Investment Trusts (FIBRAs) over the period 2020–2025. A top-K pre-selection strategy is used, mitigating the adverse cross-model interaction effect of some assets over others, in other words, reducing the propagation of errors from poorly performing base learners. In addition, the sample results show that the TAFE achieves the lowest mean SMAPE across the panel, with statistical superiority over the equal-weight benchmark and a Hybrid Model, confirmed by Diebold–Mariano and Harvey–Leybourne–Newbold tests. Out-of-sample evaluation over a 26-week horizon reveals a regime-shift-driven performance reversal consistent with the bias–variance tradeoff in adaptive combination schemes. Portfolio optimization using SA-generated forecasts yields with an expected return of 35.77%; thus, the model presents a slight overestimation of the return, with a variance of 2.4%. However, it has an acceptable level of risk. Full article

This study examines dynamic interdependencies and risk transmission among major cryptocurrencies and traditional financial assets, including Bitcoin, Ethereum, U.S. equities, and gold, over the period 2017–2024. Particular attention is given to the structural shift associated with the 2024 U.S. spot Bitcoin exchange-traded fund (ETF) approval, which marked a significant milestone in the institutionalization of cryptocurrency markets. Using daily data, the analysis distinguishes volatility-driven co-movement from structural spillover effects across markets. Dependence structures are modeled using tail-sensitive Student-t copulas applied to GARCH-filtered returns to capture nonlinear and extreme co-movements, while a vector autoregressive framework combined with generalized impulse response functions and Diebold–Yilmaz connectedness measures is employed to evaluate order-invariant shock transmission dynamics across pre- and post-ETF regimes. The results reveal three main findings. First, cryptocurrencies display strong internal dependence and short-horizon contagion, with Bitcoin consistently acting as the dominant transmitter of shocks to Ethereum over an approximately three-day transmission window. Second, linkages between cryptocurrencies and equity markets remain moderate and largely regime-dependent rather than indicative of persistent structural spillovers. Third, gold remains weakly connected throughout the sample, maintaining its role as a diversification asset. Portfolio analysis further indicates that including Bitcoin can reduce portfolio variance by 4–7% and Value-at-Risk by up to 5%, although economic gains are sensitive to transaction costs. Overall, the findings suggest that cryptocurrencies function as a partially segmented asset class, offering conditional diversification benefits despite increasing institutional adoption. Full article

This study examines overnight vs. daytime static and momentum strategies applied to ten sector Exchange-traded funds (ETFs) over a 27-year period from 1999 to 2025. Our findings reveal that several such strategies, particularly reversal strategies, consistently outperform static and buy-and-hold strategies. This outperformance decreases significantly when transaction costs are taken into account. We consider two transaction-cost scenarios (1 bps vs. 2 bps), which are industry standards for institutional and retail investors, respectively. We provided a detailed analysis of volatility and drawdowns. Our results indicate that by considering night and daytime separately, it is possible to outperform passive strategies for most sector ETFs. Full article

This study employs a sample of 25 active and 22 passive AI ETFs to examine several issues surrounding their performance, risk, pricing efficiency, and persistence in pricing discrepancies and their impact on ETFs’ performance combined with the respective impact of intraday volatility. The relationship between AI ETFs’ performance and market factors concerning size, value, profitability, investment and momentum is evaluated too. The results indicate that the passive AI ETFs have outperformed active ones over their entire trade history, without, however, shouldering their investors with materially higher volatility. Moreover, both AI ETF groups trade at a persistent premium to their NAV. The concurrent premium positively affects return, while the one-period lagged premium is negatively related to return. In addition, a negative relationship between return and concurrent intraday volatility and a positive (but less strong) relationship between return and one-period lagged intraday volatility are found. Moreover, the majority of AI ETFs do not generate significant alphas. Finally, market factors effectively explain the performance of AI ETFs. Full article

This paper examines several portfolio rules for comparing performance against the Shanghai Composite Index. The investor can use mutual funds or sector-based Exchange-Traded funds (ETFs). Five different approaches are applied for analysis. Two core approaches are discussed in detail and compared to passive investing: The top-N strategy and the sector rotation strategy. The Top-N strategy shifts capital each period into the last period rank-N fund, and the sector rotation strategy ranks funds based on their performance in the preceding investment period, forming three baskets: “Winners”, “Median”, and “Losers”. Extensive statistical tests on more than 300 equity mutual funds are performed for the top-N strategy to evaluate performance persistence using quintile sorts, winner–loser spreads, and transition tests. In contrast, the sector-rotation strategy and a holdings-based replication strategy (constructed from annual reports and sector funds) are implemented as case studies using the ten largest funds. Their performance is evaluated using multiple return and risk metrics. Full article

This study examined the ‘too central to fail’ concept in the South African equity sector. We employed the Granger causality framework and PageRank algorithm to generate the centrality scores of the sectors on the Johannesburg Stock Exchange under extreme market conditions. Using the realized volatilities of sectoral returns for the full sample period (3 January 2006–31 December 2021), as well as during the global financial crisis (GFC), European debt crisis (EDC), COVID-19 pandemic, and US–China trade war sub-periods, we analyzed the sectors’ interconnections and calculated each sector’s centrality score across the entire sample and under different extreme market conditions. This allowed us to rank sectors relative to their centrality scores. The results indicate that, in the full sample, the insurance sector has the highest PageRank centrality score, suggesting it is too central to fail. This implies that the insurance sector acts as a systemic receiver of risks and provides stability within the network of sectors. However, the sub-period analyses reveal that General Industrial and Automobiles emerged as the key sectors with the highest PageRank centrality scores, and shocks from other sectors can disproportionately affect these industries during crisis periods. Underperformance in these sectors could have destabilizing effects on the South African economy. The findings have significant implications for regulators and policymakers, portfolio and fund managers, local and international investors, and researchers in the field of finance. Full article

This study investigates the impact of sustainability-related uncertainty (SRU)—captured via the Sustainability-related Uncertainty Index in equal-weighted (ESGUI_EQ) and GDP-weighted (ESGUI_GDP) forms—on the volatility of green financial assets, focusing on decentralized finance (DeFi) protocols and Environmental, Social, and Governance (ESG)-focused Exchange-Traded Funds (ETFs). Employing a fuzzy logic framework, complemented by 3D surface visualization, Rule Viewer analysis, diagnostic validation, and Granger causality tests, the study uncovers non-linear, asymmetric, and time-varying responses of these assets to sustainability ambiguity. Empirical results reveal a structural divergence: DeFi protocols amplify volatility due to fragmented governance, speculative investor behavior, and sensitivity to policy-driven signals, often exhibiting bidirectional predictive feedback with SRU, whereas ESG ETFs maintain stability through diversification, regulatory oversight, and rigorous ESG screening, primarily absorbing sustainability shocks. These findings extend sustainable finance theory by integrating governance, technology, and policy dimensions, and illustrate the value of fuzzy logic combined with Granger causality in modeling complex, ambiguous markets. From a practical standpoint, the study provides actionable guidance for investors, fund managers, and policymakers, emphasizing the importance of technology-informed governance, standardized ESG disclosures, regulatory sandboxes, and continuous monitoring of SRU. Full article

This paper presents a hybrid framework for multi-stock trading that combines the decision-making ability of Deep Q-Networks (DQN) with the allocation precision of portfolio optimization models. Realistic markets are noisy and non-stationary, and complex action spaces can hinder reinforcement learning (RL) performance. The DQN generates buy/sell signals based on market conditions. The framework passes buy-listed assets to an optimizer, which computes portfolio weights. Five allocation strategies are examined: naïve 1/N, Markowitz Mean–Variance, Global Minimum Variance, Risk Parity, and Sharpe Ratio Maximization. Empirical evaluations on emerging-market exchange-traded funds (ETFs), as well as additional tests on U.S. equities, show that even the baseline DQN outperforms traditional technical indicators. Furthermore, integrating any of the optimization approaches with DQN yields measurable improvements in return-risk performance metrics. Among the hybrid frameworks, DQN combined with Sharpe Ratio Maximization delivers the most consistent gains. The findings highlight the value of decomposing stock selection from capital allocation and demonstrate the effectiveness of the proposed DQN-optimization framework on our testbed. Full article

Portfolio management (PM) is a broad investment strategy aimed at risk mitigation through diversified financial product investments. Acknowledging the significance of dynamic adjustments after establishing a portfolio to enhance stability and returns, we propose employing reinforcement learning (RL) to address dynamic decision-making challenges. However, traditional RL methods often struggle to adapt to significant market volatility, primarily by focusing on adjusting existing asset weights. Different from traditional RL methods, the multi-agent reinforcement learning correctable strategy (MAC) developed in this study detects and replaces potentially harmful assets with familiar alternatives, ensuring a resilient response to market crises. Utilizing the multi-agent reinforcement learning model, MAC empowers individual agents to maximize portfolio returns and minimize risk separately. During training, MAC strategically replaces assets to simulate market changes, allowing agents to learn risk-identification through uncertainty estimation. During testing, MAC detects potentially harmful assets and replaces them with more reliable alternatives, enhancing portfolio stability. Experiments conducted on a real-world US Exchange-Traded Fund (ETF) market dataset demonstrate MAC’s superiority over standard RL-based PM methods and other baselines, underscoring its practical efficacy for real-world applications. Full article

We investigate the underlying risk exposures of ETFs compared with their indices using a Principal Component Analysis approach. Then, we test whether ETFs’ tracking errors can capture the risk exposure difference between ETFs and their underlying benchmarks. We document a significant positive relation between tracking error and differences in risk exposure between ETFs and their corresponding indices. Even modest increases in tracking error are associated with economically meaningful divergences in risk exposure between an ETF and its benchmark. These findings suggest that comparisons of tracking error across index ETFs when making investment decisions may be misleading for investors seeking benchmark-consistent risk exposure. Full article

Perpetual futures account for approximately 93% of cryptocurrency futures trading volume, yet funding rate dynamics across fragmented markets remain understudied. We construct a high-frequency panel dataset comprising 35.7 million one-minute observations across 26 cryptocurrency exchanges (11 centralized, 15 decentralized) spanning 749 symbols over eight consecutive days. Using time-series econometrics, correlation analysis, and Granger causality tests, we characterize funding rate dynamics, market integration, and information flow. We find evidence of a two-tiered market structure: centralized exchanges (CEX) dominate price discovery with 61% higher integration than decentralized exchanges (DEX), and all significant information flow runs CEX-to-DEX with zero reverse causality. While 17% of observations exhibit economically significant arbitrage spreads (≥20 basis points), only 40% of top opportunities generate positive returns after transaction costs and spread reversals. Delta-neutral portfolio simulations reveal that successful arbitrage requires both high spreads and sufficient duration before inevitable reversals, with forced exits occurring in 95% of opportunities. The findings show that cryptocurrency derivatives markets exhibit a persistent two-tiered structure in which centralized platforms dominate price discovery while transaction costs and spread reversal risks prevent arbitrage from eliminating large mispricings between platforms, resolving the apparent paradox of substantial price fragmentation coexisting with market efficiency. Full article

Exchange-traded funds (ETFs) provide low-cost, liquid access to broad equity and fixed-income exposures, including rapidly growing Asian and Asia-focused markets. Yet the academic evidence on Asian ETF portfolio construction remains fragmented, often limited to narrow country samples and centered on mean–variance trade-offs and standard performance statistics, with comparatively less emphasis on downside tail risk and on implementable long-only versus long–short designs under leverage constraints. This study examines the performance and risk characteristics of 29 Asian and Asia-focused ETFs over 2014–2025 and evaluates whether optimization using variance-based and tail-sensitive risk measures improves portfolio outcomes relative to a simple, implementable benchmark. We construct Markowitz mean–variance and conditional value-at-risk (CVaR) efficient frontiers and implement six optimized portfolios at the 95% and 99% tail levels under long-only and long–short configurations with leverage up to 30%. Performance is evaluated relative to an equally weighted Asian ETF benchmark using the Sharpe ratio and tail-sensitive measures, including the Rachev ratio and the stable tail adjusted return (STARR), complemented by fat-tail diagnostics based on the Hill tail-index estimator. The empirical results show that optimization improves efficiency relative to equal weighting in risk-adjusted terms and that moderate leverage can increase returns but typically amplifies volatility, dispersion, and drawdowns. Taken together, the evidence indicates that risk-measure choice materially affects portfolio composition and realized outcomes, with tail-based optimization generally producing more robust allocations than mean–variance approaches when downside risk is a primary concern. Full article