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Active ETFs vs. Retail Investors During the Covid-19 Pandemic

Hello to all!


Over this past year, as part of the AP Capstone Research course I've been taking, I got the opportunity to investigate a topic or question I found interesting and write a research paper on my findings.


Naturally, I knew I wanted to do something in investments. However, as anyone who has dabbled in or is involved in the field will know, there is a lot of research out there, spanning everything from historical market analyses to comparisons of risk management techniques.


This made developing my research question difficult, as I wanted to do something that would provide a level of new insight into the patterns and mechanisms at work in the markets. This desire drew me to focusing on retail investors, who have risen as a powerful market force during the Covid-19 pandemic in a way they've never been before.


Luckily for me, my school has a large investment club that runs a competition on howthemarketworks.com, which provided me with my initial inquiry and dataset, and allowed me to address a gap in existing research as to the performance of high school retail investors.


However, this wasn't quite interesting enough for me. As a retail investor myself, I wanted to know how professional investors had been faring in the turbulent pandemic markets, and whether their wealth of knowledge and experience was truly granting them the advantages many believe it does.


So, I modified by inquiry, which now sought to compare the risk and return profiles of retail investors and active management ETFs during the Covid-19 pandemic markets to see which group had managed to outperform the other.


As you can probably guess, my initial review of existing literature of the historical performance of retail investors and active management ETFs overwhelmingly supported a landslide ETF victory. Suprisingly, however, this was not what I found. While the ETFs had lower risk exposure than the retail investors by some measures, when looking at net returns, the median retail investor vastly outperformed the median ETF I looked at. Round of applause to the Andrean Investors!


Unfortunately, with a combined retail investor-ETF participant count of only 72 and a study period of 6 months, it would be misleading at best and fraudulent at worst to claim these results are statistically reliable. I did not do a t-test, but I suspect my p-value would be something close to that of the Phillips Curve.


If you've made it this far and are keen to know more. I've attached the full research paper to this post. This is a bit different from what I'll typically be doing here. I really enjoyed doing this project and didn't want a years' worth of work to sit dormant in a folder buried in a folder, so I decided to share it here. Hopefully you find it as interesting as I do!

Active ETFs vs. Retail Investors
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