Title: An analysis of pricing efficiency of exchange traded funds in India using ARDL bounds test approach
Authors: Buvanesh Chandrasekaran; Rajesh H. Acharya
Addresses: School of Management, National Institute of Technology Karnataka, Surathkal, Mangalore-575025, Karnataka, India ' School of Management, National Institute of Technology Karnataka, Surathkal, Mangalore-575025, Karnataka, India
Abstract: This paper analyses the pricing efficiency of exchange traded funds (ETFs) in India. In order to achieve the objective, the study employs the autoregressive distributed lag (ARDL) model - bounds test approach. The study includes 14 equity ETFs for the time period from the inception date of each ETF to December 2016. An attempt has been made to establish long-run relationship between the closing price of ETFs and closing index values using ARDL model. The study also analyses the research question in the presence of single and multiple structural breaks. Empirical results of the study show that the absolute pricing deviation is relatively small in the case of ETFs. Most of the ETFs have long-run relationship with the underlying index. The study confirms structural breaks in the ETF closing price time series. With the introduction of structural breaks, increase in the size of statistically significant long-run coefficients indicates an improvement in the speed of correction to the equilibrium level.
Keywords: pricing efficiency; exchange traded funds; ETFs; autoregressive distributed lag; ARDL; structural breakpoint; India.
DOI: 10.1504/AAJFA.2021.117742
Afro-Asian Journal of Finance and Accounting, 2021 Vol.11 No.4, pp.607 - 633
Received: 09 Apr 2019
Accepted: 06 Apr 2020
Published online: 23 Sep 2021 *