Indices, Index Funds And ETFs: Exploring HCI, Nonlinear Risk and Homomorphisms [Hardcover]

Indices, index funds and ETFs are grossly inaccurate and inefficient and affect more than ?120 trillion worth of securities, debts and commodities worldwide. This book analyzes the mathematical/statistical biases, misrepresentations, recursiveness, nonlinear risk and homomorphisms inherent in equity, debt, risk-adjusted, options-based, CDS and commodity indices  and by extension, associated index funds and ETFs. The book characterizes the Popular-Index Ecosystems, a phenomenon that provides artificial price-support for financial instruments, and can cause systemic risk, financial instability, earnings management and inflation. The book explains why indices and strategic alliances invalidate Third-Generation Prospect Theory (PT³), related approaches and most theories of Intertemporal Asset Pricing. This book introduces three new decision models, and some new types of indices that are more efficient than existing stock/bond indices. The book explains why the Mean-Variance framework, the Put-Call Parity theorem, ICAPM/CAPM, the Sharpe Ratio, Treynor Ratio, Jensens Alpha, the Information Ratio, and DEA-Based Performance Measures are wrong. Leveraged/inverse ETFs and synthetic ETFs are misleading and inaccurate and non-legislative methods that reduce index arbitrage and ETF arbitrage are introduced.  

1. Introduction.- 2. Number Theory, Structural Biases and Homomorphisms in Traditional Stock/Bond/Commodity Index Calculation Methods in Incomplete Markets with Partially Observable Un-aggregated Preferences, MN-Transferable-Utilities and RegretMinimization Regimes.- 3. A Critique of Credit Default Swaps (CDS) Indices.- 4. Invariants and Homomorphisms Implicit in, and the Invalidity of the Mean-Variance Framework and Other Causality Approaches: Some Structural Effects.- 5. Decision-Making, Sub-additive Recursive Matching Noise and Biases in Risk-Weightló¡