In recent years, Korean stock market has been developed very rapidly. Therefore, more and more investors became to compete for high rewards. This is enhancing the efficiency of capital market.
In capital market having the efficiency of information, however, no investors gain continuously more than market average return. Therefore, the index fund that is designed to track closely the market index is demanded.
In this paper, we first explain the background of index fund. Second, we briefly examine the stationarity of systematic risk(β-risk). Finally, we construct the index fund using a particular model and interpret the testing results obtained by using this model.
The testing of stationarity of β-risk is performed with the variable parameter regression.
With the above testing and cluster analysis using the weekly return data, we select the firms which are included the index fund. And we construct the index fund as the method minimizing the portfolio residual risk.
From the above construction and testing of the index fund, we show that this portfolio tracks closely the market index. Also, we examine the rebalancing with the cost-benefit analysis after one year from the construction of the index fund and conclude non-reblancing is better.
