Price Discovery in Emerging Market ETFs

Applied Economics, Vol. 54, No. 47, 2022

33 Pages Posted: 20 Oct 2020 Last revised: 21 Sep 2022

See all articles by Yigit Atilgan

Yigit Atilgan

Sabanci University

K. Ozgur Demirtas

Sabanci University Graduate School of Management

A. Doruk Gunaydin

Sabanci University

MUSTAFA OZTEKIN

affiliation not provided to SSRN

Date Written: October 6, 2020

Abstract

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.

Keywords: exchange traded funds, equity markets, price discovery, information efficiency

JEL Classification: G10, G11, G12, G14

Suggested Citation

Atilgan, Yigit and Demirtas, K. Ozgur and Gunaydin, A. Doruk and OZTEKIN, MUSTAFA, Price Discovery in Emerging Market ETFs (October 6, 2020). Applied Economics, Vol. 54, No. 47, 2022, Available at SSRN: https://ssrn.com/abstract=3706070 or http://dx.doi.org/10.2139/ssrn.3706070

Yigit Atilgan (Contact Author)

Sabanci University ( email )

Orta Mahalle Üniversite Caddesi 27
Istanbul, Orhanli, 34956 Tuzla 34956
Turkey

K. Ozgur Demirtas

Sabanci University Graduate School of Management ( email )

Sabanci University, School of Management
Orhanli Tuzla
Orhanlı-Tuzla, Istanbul, 34956
Turkey
(+90) 216-483-9985 (Phone)
(+90) 216-483-9699 (Fax)

A. Doruk Gunaydin

Sabanci University ( email )

School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey

MUSTAFA OZTEKIN

affiliation not provided to SSRN

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