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Pricing Efficiency of China's Exchange-Traded Fund Market

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  • Yuexiang Jiang
  • Feng Guo
  • Tianjian Lan

Abstract

This study investigates the pricing efficiency of the Shanghai 50 ETF (SSE 50 ETF), the first exchange-traded fund (ETF) in China. The empirical results demonstrate that ETF market prices and net asset values (NAV) are cointegrated and there is unidirectional causality from price to NAV. The conditional variance dynamics from the augmented Generated AutoRegressive Conditional Heteroskedasticity (GARCH) framework show that ETF market prices influence NAV volatility and therefore can be used as price-discovery vehicles. The study also finds that the fund's prices did not closely follow the NAV during the second half of 2007, when the Chinese stock market experienced substantial volatility, reflecting sudden increased market risks as well as potential arbitrage opportunities during financial turbulences.

Suggested Citation

  • Yuexiang Jiang & Feng Guo & Tianjian Lan, 2010. "Pricing Efficiency of China's Exchange-Traded Fund Market," Chinese Economy, Taylor & Francis Journals, vol. 43(5), pages 32-49, January.
    • Handle: RePEc:mes:chinec:v:43:y:2010:i:5:p:32-49
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    Cited by:

    1. Chen, Mei-Ping & Lee, Chien-Chiang & Hsu, Yi-Chung, 2017. "Investor sentiment and country exchange traded funds: Does economic freedom matter?," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 285-299.
    2. Xu, Liao & Yin, Xiangkang & Zhao, Jing, 2019. "The sidedness and informativeness of ETF trading and the market efficiency of their underlying indexes," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).

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