Effect of interest rates, exchange rates and IMKB-100 index in determining the performance of exchange traded fund: An application on the ISE

The objective of the study is to determine the performances of Exchange Traded Funds in terms of financial and statistical analysis. The study consists of 4 sections: in the first section mutual funds concepts are examined; in the second section Exchange traded funds concepts are explored; in the third section, portfolio management strategies are articulated; and in the forth section, financial and statistical analysis of exchange traded funds are conducted and reported. Daily price information data covers the period of Jan.2006 to Oct.2008. Results of the analysis are as follows: The average return of Exchange traded funds come out to be negative (-0,0003) with standard deviation of 0,02; whereas FX returns and government instruments yielded positive (0,0004) with standard deviation of 0,01. Portfolio performance measures that are applied produced almost similar performance ranking for the sampled funds. Beta coefficient of fund returns were come out to be very low, which strongly contradicts literature; c2 coefficient (indicator for timing capability of managers) found to be negative for all sampled fund managers. Return of Exchange traded funds revealed a negative correlation with USD but positive correlated with Euro; however canonic correlation analysis yielded exactly the opposite correlation between fund returns and FX rates. Except for government instruments, returns of all the sampled investment vehicles homogenous subgroups for all periods of analysis.