Do pricing efficiencies in Indian equity ETF market impact its performance?

Garima Goel and Eshan Ahluwalia

Global Finance Journal, 2021, vol. 49, issue C

Abstract: We examine the pricing efficiency of domestic exchange-traded funds (ETFs) in the Indian equity market where growth co-exists with operating inefficiencies. The ETFs, on average, outperform their fund benchmarks, but the magnitudes of the premium (discount) and tracking error are considerably higher for a synchronously traded market. Among the ETF categories based on fund benchmarks, thematic and broad market ETFs have higher tracking errors and discounts than strategy and sectoral ETFs. We find a nonsignificant negative relationship between discount and redemption units, implying that the creation/redemption process remains unaffected by the prevailing discount in the market. Despite low arbitrage constraints, market participants fail to curtail the prevailing tracking error and discount. This study highlights the operational constraints of arbitrageurs in the Indian ETF market.

Keywords: Exchange-traded funds; Tracking error; Premium; Inefficiency; Arbitrage (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:49:y:2021:i:c:s1044028321000521

DOI: 10.1016/j.gfj.2021.100654

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