Price discovery in emerging market ETFs

Atılgan, Yiğit and Demirtaş, Özgür and Günaydın, A. Doruk and Öztekin, Mustafa (2022) Price discovery in emerging market ETFs. Applied Economics, 54 (47). pp. 5476-5496. ISSN 0003-6846 (Print) 1466-4283 (Online)

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This study investigates the price discovery role of exchange-traded funds (ETFs) by examining the predictive relation between the returns of emerging market ETFs traded in the US and the returns to the aggregate equity indices that they track. In a sample that covers 18 countries, we find that ETF returns can predict one-day-ahead returns of their underlying indices. This relation is robust after controlling for the non-synchronicity between markets, serial correlation in index returns, and various determinants of aggregate returns. Moreover, the predictive relation is more pronounced during periods of higher volatility and evidence for bidirectional spillover effects is weak. We also find that an out-of-sample rolling window strategy outperforms investing in the market index several-fold in the majority of the markets, especially in the high-volatility subsample.
Item Type: Article
Uncontrolled Keywords: equity markets; Exchange traded funds; information efficiency; international finance; price discovery
Divisions: Sabancı Business School
Depositing User: Yiğit Atılgan
Date Deposited: 23 Aug 2022 20:03
Last Modified: 23 Aug 2022 20:03

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