Pricing Efficiency of Exchange Traded Funds in India

Abstract

This study empirically examines the pricing efficiency of Exchange Traded Funds (ETFs) in India in terms of the deviations of price from Net Asset Value (NAV) as well as the persistence of such deviations. A sample of twelve ETFs listed on the National Stock Exchange of India has been analyzed in this study over a period ranging from January 2002 to December 2009. We find evidence of significant pricing deviations (premiums and discounts) for all the ETFs analyzed in this study. Moreover, such deviations are found to persist over a number of days for most of the ETFs. These findings indicate gross pricing inefficiencies and the presence of unexploited arbitrage opportunities in the Indian ETF market which commands immediate attention of the market players. To the best of our knowledge there has been no previous published research study which empirically examines the pricing efficiency of Exchange Traded Funds in India and this is the first such attempt in this direction.