Finding the Efficient Passive ETFs

Are some passive exchange-trade-fund (ETF) managers more efficient than others in adjusting to changes in underlying benchmark indexes? In the December 2021 revision of his paper entitled “Should Passive Investors Actively Manage Their Trades?”, Sida Li employs daily holding data of passive ETFs to compare and quantify effects of different approaches to portfolio reformation to track underlying indexes. Using daily and monthly holdings as available for 732 passive and unlevered U.S. equity ETFs (with no survivorship bias), underlying index reformation announcements and associated stock prices during 2012 through 2020, he finds that:

(more…)