Testing weak-form efficiency of exchange traded funds market

Gerasimos G. Rompotis

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we assess the weak-form efficiency of Exchange Traded Funds market applying various parametric and non-parametric tests. The parametric tests performed concern serial correlation tests and Augmented Dickey-Fuller (ADF) unit root test while the nonparametric tests used is the Phillips-Peron (PP) unit root test. To assess ETF market efficiency, we employ full daily return historical data of a sample of 66 equity-linked ETFs traded in the U.S. stock over the period 2001-2010. The performed tests provide evidence on the fact that the efficient market hypothesis holds in the ETF market. In particular, the majority of serial correlation tests show the lack of such an issue in the time series of ETF returns, which is a prerequisite in order for the efficient market hypothesis to be verified. Moreover, both the parametric and non-parametric unit root tests adopted reveal the non-existence of such an issue with respect to the pricing of ETFs and, therefore, the weakform of the efficient market hypothesis seems not to be infringed in the U.S. ETF market.

Keywords: ETFs; Market efficiency; Weak-forms (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2011-07
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Citations: View citations in EconPapers (2)

Published in Aestimatio. The IEB International Journal of Finance 2 (2011): pp. 1-32

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