Delving into the exchange-traded funds (ETFs) market: understanding market efficiency

Dias, Rui; Galvão, Rosa; Irfan, Mohammad; Alexande, Paulo; Gonçalves, Sidalina; Almeida, Liliana

http://hdl.handle.net/10400.26/57752

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Abstract(s)

Exchange-traded funds (ETFs) are the most popular products in the financial sector today. There is extensive literature on the multifractal analysis of some stock markets, but not about the multifractal behaviour of the ETF market. This study examines the efficiency of stock index ETFs worldwide from an Efficient Market Hypothesis (EMH) perspective, using the ETFs: Ishares Msci World ETF (URTH), Ishares Russell 1000 ETF (IWB), SPDR S&P 500 ETF TRUST (SPY), Ishares Global Clean En. ETF (ICLN), Ishares USD Green Bond ETF (BGRN), from 1 January 2021 to 24 May 2024. It analyses a pre-conflict and a geopolitical conflict to uncover distinct patterns of behaviour reflecting significant changes in market conditions. Before the conflict, the Ishares MSCI World, Ishares Russell 1000, SPDR S&P 500 and Ishares USD Green Bond ETFs showed signs of anti-persistence in returns, indicating a lack of strong relationship or predictability between short-term price movements. The Ishares Global Clean Energy ETF did not reject the random walk hypothesis, suggesting that returns follow a pattern closer to random, where market prices already efficiently reflect all available information. During the conflict, there was a transition in the ETFs' behaviour patterns, as evidenced by the increases in slope values for Ishares MSCI World, Ishares Russell 1000, SPDR S&P 500, Ishares Global Clean Energy and Ishares USD Green Bond. Thus, the possible transition from anti-persistence to long-term memories in ETF returns during the conflict. For portfolio managers, these findings highlight the need to continually adapt investment strategies to manage risks better and take advantage of opportunities in a dynamic and complex investment environment.

Keywords

Long Memory Exchange-Traded Funds Relative Efficiency

URI

http://hdl.handle.net/10400.26/57752

Citation

Dias , R., Galvão , R., Irfan , M., Alexandre , P., Gonçalves , S. & Almeida , L. (2024). Delving into the Exchange-Traded Funds (ETFs) Market: Understanding Market Efficiency. Journal of Ecohumanism, 3(4), 2670–2681. https://doi.org/10.62754/joe.v3i4.3787