In January 1993, the Most Actives landscape was changed significantly by the introduction of ETFs. An ETF is an investment fund backed by assets such as stocks, bonds or commodities that tracks the underlying assets so closely that the ETF can serve as an investment analog to the assets. There now are more than 1,000 ETFs listed and traded on the major stock exchanges (right).
With the proliferation of these new issues, data collection problems were exacerbated. First, should these asset-based hybrids be included in the Most Actives statistics? Some suggested they were anomalies. Others argued that a dollar spent in the market means volume is generated and that volume shows investor intent. Ultimately, ETFs were included in this study because it is likely that segment will continue to constitute a greater share of market trading volume.
However, ETFs introduce another challenge because there are inverse ETFs that move counter to the market because the fund’s portfolio is composed of short positions. For example, when the stock market declines, an inverse ETF advances in price; when the underlying instrument rallies, the ETF declines in price. To correct for this issue, a rising inverse ETF must be counted as a declining issue, while a declining inverse ETF must be recorded as an advancing issue.
Other adjustments included the exclusion of volatility-based ETF issues, such as those derived from the VIX, because they are a step removed from actual stock prices and are not asset-based.