Pricing efficiency and performance evaluation of selected exchange traded funds in India

Abstract

The study examines the pricing efficiency and performance of the selected ETFs in India. The study covers a period from 1st April 2005 to 31st March 2018. The sample for the study includes 26 ETFs listed at NSE. To compare the performance of ETFs with Index Funds, a sample of 5 ETFs and 5 index funds having common benchmark index has been selected. For the purpose of analysis different statistical tools like, descriptive statistics, one-sample t-test, independent sample t-test, effect size (d and and#120578;2 ), Welch s F test, Post-hoc (Games-Howell) test, autoregressive model, coefficient of variation (CV), tracking error, tracking difference and Jensen s model etc. have been applied. The findings of the study point towards the existence of pricing inefficiency in Indian ETF market and also highlight that the arbitrage opportunity in Indian ETFs market largely remains unexploited. The study also finds that the ETFs are able to replicate the performance of their benchmark indices and provide average return that matches the average returns of their corresponding benchmark indices; thus, suggests tracking efficiency in Indian ETF market. Further, the comparison of performance of ETFs and Index Funds shows that both, ETFs and index funds in India provides similar return and risk exposure to the investors and also exhibits similar tracking efficiency. The findings of the study have important implications for Asset Management Companies (AMCs), Investors, Authorised Participant (AP) and Regulatory Authorities. newline