EXCHANGE TRADED FUNDS, SIZE-BASED PORTFOLIOS, AND MARKET EFFICIENCY

Palani-Rajan Kadapakkam (), Timothy Krause and Yiuman Tse Yiuman Tse
Additional contact information
Palani-Rajan Kadapakkam: UTSA

Working Papers from College of Business, University of Texas at San Antonio

Abstract: We examine the informational efficiency of size-based U.S. Exchange Traded Funds (ETFs) and comparable CRSP portfolios using weekly and daily returns. Compared to the CRSP portfolios, ETFs are better suited for market efficiency tests. ETFs avoid the problems created by asynchronous pricing of underlying securities. Further, their negligible bid-ask spreads greatly diminish noise due to the bid-ask bounce. Variance ratio analysis demonstrates that return autocorrelations have diminished significantly over the past decade. Granger causality tests reject the presence of lead-lag effects among size-based ETFs. Volatility spills over from large firm ETFs to those of smaller firms, and correlations increase during periods of market volatility. We confirm these spillovers by examining implied volatilities derived from ETF option prices.

Keywords: Exchange Traded Funds; Market efficiency (search for similar items in EconPapers)
Pages: 39 pages
Date: 2013-03-05
References: Add references at CitEc
Citations:

Downloads: (external link)
http://interim.business.utsa.edu/wps/fin/0037FIN-088-2013.pdf Full text Classification- G15 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tsa:wpaper:0214fin

Access Statistics for this paper

More papers in Working Papers from College of Business, University of Texas at San Antonio Contact information at EDIRC.
Bibliographic data for series maintained by Wendy Frost ().