Abstract
We examine the informational efficiency of size-based US exchange traded funds (ETFs) and comparable Center for Research in Security Prices portfolios. ETFs are better suited for market efficiency tests since they avoid potential asynchronous trading problems, and 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. However, volatility spills over from large firm ETFs to those of smaller firms, and these spillovers extend to ETF option implied volatilities.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 89-110 |
| Number of pages | 22 |
| Journal | Review of Quantitative Finance and Accounting |
| Volume | 45 |
| Issue number | 1 |
| DOIs | |
| State | Published - Jul 1 2015 |
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All Science Journal Classification (ASJC) codes
- Accounting
- Business, Management and Accounting(all)
- Finance
Cite this
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Exchange traded funds, size-based portfolios, and market efficiency. / Kadapakkam, Palani Rajan; Krause, Timothy Alan; Tse, Yiuman.
In: Review of Quantitative Finance and Accounting, Vol. 45, No. 1, 01.07.2015, p. 89-110.Research output: Contribution to journal › Article
TY - JOUR
T1 - Exchange traded funds, size-based portfolios, and market efficiency
AU - Kadapakkam, Palani Rajan
AU - Krause, Timothy Alan
AU - Tse, Yiuman
PY - 2015/7/1
Y1 - 2015/7/1
N2 - We examine the informational efficiency of size-based US exchange traded funds (ETFs) and comparable Center for Research in Security Prices portfolios. ETFs are better suited for market efficiency tests since they avoid potential asynchronous trading problems, and 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. However, volatility spills over from large firm ETFs to those of smaller firms, and these spillovers extend to ETF option implied volatilities.
AB - We examine the informational efficiency of size-based US exchange traded funds (ETFs) and comparable Center for Research in Security Prices portfolios. ETFs are better suited for market efficiency tests since they avoid potential asynchronous trading problems, and 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. However, volatility spills over from large firm ETFs to those of smaller firms, and these spillovers extend to ETF option implied volatilities.
UR - http://www.scopus.com/inward/record.url?scp=84930091206&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84930091206&partnerID=8YFLogxK
U2 - 10.1007/s11156-013-0429-x
DO - 10.1007/s11156-013-0429-x
M3 - Article
VL - 45
SP - 89
EP - 110
JO - Review of Quantitative Finance and Accounting
JF - Review of Quantitative Finance and Accounting
SN - 0924-865X
IS - 1
ER -