Pricing Efficiency and Price Discovery of Indian Equity ETFs

Abstract

An exchange-traded fund (ETF) is a financial asset that tracks a chosen index and trades continuously throughout the day. The price differential between the market price and net asset value (NAV) of the ETF creates risk-free arbitrage opportunities. This article captures the pricing efficiency and price discovery process using autoregressive analysis model and a vector error correction model (VECM). The study concludes that the Indian ETF market displays a lack of price efficiency. Except for two ETFs, the NAV of the ETF has been the lead indicator for ETFs.

TOPICS: Exchange-traded funds and applications, statistical methods, emerging