A Study on Pricing Efficiency and Replication Strategy of Exchange Traded Funds

Abstract

The study mainly investigating the pricing efficiency and replication strategy of exchange traded funds in the select segment of Equity ETFs and Gold ETFs during the period of 2012-2017. The study employed the famous market model (CAPM) to examine the replication strategy, pricing efficiency, tracking error and persistence performance of select exchange traded funds. The study concludes that Equity ETFs viz., Edelwiese AMC ETF, Motilal Oswal AMC ETF, Quantum AMC ETF and Gold ETFs viz., AIXS Gold ETF, IDBI Gold ETF, Quantum Gold ETF are adopting Selective replication strategy during the study period. During the study period it was evident that except Edelweiss AMC ETF, all other ETFs viz., Motilal Oswal AMC ETF, Quantum AMC ETF, Axis Gold ETF, IDBI Gold ETF, Quantum Gold ETFs are closely tracking the index and managing the tracking errors at an acceptable level. It indicates that all five funds are replicating the index closely. The study revelead that except Motilal Oswal M-50 ETF remaining all ETFs viz., Edelweises Equity ETF, IDBI Gold ETF, Quantum Equity ETF, Axis Gold ETF, Quantum NIFTY Gold ETFs are delievring premiums to investors.