Exchange traded funds, size-based portfolios, and market efficiency

Palani Rajan Kadapakkam; Timothy Krause; Yiuman Tse

doi:10.1007/s11156-013-0429-x

Exchange traded funds, size-based portfolios, and market efficiency

Palani Rajan Kadapakkam, Timothy Krause, Yiuman Tse

Black School of Business (Behrend)

Research output: Contribution to journal › Article

7 Scopus citations

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	https://doi.org/10.1007/s11156-013-0429-x
State	Published - Jul 1 2015

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All Science Journal Classification (ASJC) codes

Accounting
Business, Management and Accounting(all)
Finance

Cite this

Kadapakkam, P. R., Krause, T., & Tse, Y. (2015). Exchange traded funds, size-based portfolios, and market efficiency. Review of Quantitative Finance and Accounting, 45(1), 89-110. https://doi.org/10.1007/s11156-013-0429-x

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Access to Document

10.1007/s11156-013-0429-x