The New York Stock Exchange (NYSE), part of Intercontinental Exchange (ICE), and Zebra Capital Management have launched the NYSE Zebra Edge Index, an index that incorporates behavioral finance research on high-turnover, or 'popular' stocks, with the goal of capturing higher returns with lower volatility.
The NYSE Zebra Edge Index is founded on the academic research by renowned economist Professor Roger Ibbotson which demonstrates the relationship between highly-traded stocks and returns. The index allocates to an equal-weighted portfolio of large cap equities after removing for both overly popular, or high-turnover, stocks and stocks with a higher level of volatility.
"Our research in behavioral finance shows that the most popular stocks tend to experience higher volatility and provide lower future returns," said Professor Ibbotson, founder and chief investment officer at Zebra Capital Management, in a statement. "By removing the most popular and the most volatile stocks, you are left with less popular, less volatile stocks which have historically provided higher returns with less risk."
Co-branded and developed with Zebra Capital, the NYSE Zebra Edge Index incorporates a proprietary risk control overlay to target a specific level of portfolio volatility and leverages the NYSE's industry-leading index development capabilities, index calculation engine and widely-distributed index data feeds.
Dwijen Gandhi (pictured), head of NYSE Indices at Intercontinental Exchange, said the index is the first NYSE index to be used in an insurance product, as it has been exclusively licensed to insurance provider Nationwide to be deployed within the firm's Nationwide New Heights fixed indexed annuities.
UBS will act as the hedge provider and sub-licensor for the NYSE Zebra Edge Index.
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