ETFs, Anomalies and Market Efficiency

27 Pages Posted: 4 Apr 2022 Last revised: 8 Apr 2022

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

Songrun He

Washington University in St. Louis - John M. Olin Business School

Sophia Zhengzi Li

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Date Written: March 12, 2022

Abstract

We investigate the effect of ETF ownership on stock market anomalies and market efficiency. We find that low ETF ownership stocks exhibit higher returns, greater Sharpe ratios, and highly significant alphas in comparison to high ETF ownership stocks. We show that high ETF ownership stocks demonstrate more pronounced information flows than low ETF ownership stocks which reduces their mispricing as they are more informationally efficient. We find similar results when we match the two groups based on size, volume, book-to-market and momentum. Our results are robust to different matching methods and to a wide array of controls in Fama-MacBeth regressions.

Keywords: ETF arbitrage, Anomalies, Market Efficiency

JEL Classification: G11, G12, G14, G23

Suggested Citation

Filippou, Ilias and He, Songrun and Li, Sophia Zhengzi and Zhou, Guofu, ETFs, Anomalies and Market Efficiency (March 12, 2022). Available at SSRN: https://ssrn.com/abstract=4056260 or http://dx.doi.org/10.2139/ssrn.4056260

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Songrun He

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Sophia Zhengzi Li

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

100 Rockafeller Rd
Piscataway, NJ 08854
United States

Guofu Zhou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

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