HAS OMXH 25 ETF IMPROVED LIQUIDITY AND MARKET EFFICIENCY OF ITS UNDERLYING INDEX?
Huttunen, Olli Hannes (2012)
2012
Kuvaus
Opinnäytetyö kokotekstinä PDF-muodossa.
Tiivistelmä
During the past years the popularity of exchange-traded funds has grown remarkably. At the same time, the number and variety of new exchange-traded funds has increased dramatically. Despite of their success, there has been relatively little research done on these funds among academic professionals. Most of the studies related to ETFs have focused on topics such as profitability of ETFs, pricing efficiency of ETFs and their impact on related securities. Only a few studies have examined the link between ETFs and their impact on liquidity of underlying indices. Moreover, the research concerning the relation between ETFs and their effect on weak-form market efficiency is almost non-existent. Thus, this study aims at filling this gap.
More specifically, the purpose of this thesis is to examine how the market efficiency has reacted to the introduction of the ETF tracking the OMXH 25 index. In addition, the liquidity of its component stocks is investigated. The research period spans from the 8.8.2001 to 8.8.2002. The ETF tracking the development of OMXH 25 index was introduced on 8.2.2002. Thus, the research period is divided into two sections centering on the introduction date. In order to obtain more reliable results, this thesis employs a method called difference-in-difference approach, and uses OMXS 30 index for comparison of results. The liquidity of the components stocks is investigated using bid-ask spreads and liquidity ratios. The weak-form market efficiency is studied through the use of variance ratios.
The findings from the liquidity measures indicate that the liquidity of stocks included in the OMXH 25 index has improved significantly after the inception of the ETF. However, the second hypothesis concerning the positive impact of the introduction of the ETF on weak-form market efficiency could not be accepted. Thus, the results indicate that the inception of OMHX 25 ETF has improved the liquidity of its underlying index but not the weak-form market efficiency.
More specifically, the purpose of this thesis is to examine how the market efficiency has reacted to the introduction of the ETF tracking the OMXH 25 index. In addition, the liquidity of its component stocks is investigated. The research period spans from the 8.8.2001 to 8.8.2002. The ETF tracking the development of OMXH 25 index was introduced on 8.2.2002. Thus, the research period is divided into two sections centering on the introduction date. In order to obtain more reliable results, this thesis employs a method called difference-in-difference approach, and uses OMXS 30 index for comparison of results. The liquidity of the components stocks is investigated using bid-ask spreads and liquidity ratios. The weak-form market efficiency is studied through the use of variance ratios.
The findings from the liquidity measures indicate that the liquidity of stocks included in the OMXH 25 index has improved significantly after the inception of the ETF. However, the second hypothesis concerning the positive impact of the introduction of the ETF on weak-form market efficiency could not be accepted. Thus, the results indicate that the inception of OMHX 25 ETF has improved the liquidity of its underlying index but not the weak-form market efficiency.