Market efficiency of gold exchange-traded funds in India

Abstract

Background: Gold exchange-traded funds, since introduction, are primarily aimed at tracking the price of physical gold in the financial market. This, a category of exchange-traded funds, whose units represent physical gold, is traded on exchanges like any other financial instrument. In the Indian financial market, gold exchange traded funds were introduced a decade ago to facilitate ordinary households' participation in the bullion market. They were also designed to assist in the price discovery mechanism of the bullion market. Presentation of the hypothesis: In this paper, it is attempted to check if one of the constituents of price discovery mechanism, informational efficiency, has been achieved in gold exchange-traded funds' market. Information efficiency becomes evident only when all available information is reflected in the market price of the instrument. Testing the hypothesis: Therefore, in order to assess the weak-form efficiency of the gold exchange-traded funds market, the daily returns of five gold exchangetraded funds traded on the Indian Stock Exchange over the period March 22, 2010, to August 28, 2015, were used. The non-parametric runs test, the parametric serial correlation test, and the augmented Dickey-Fuller unit root test are employed.

Functional Effectiveness of Commodity Futures Market: A Comparative Assessment of Agricultural and Metal Commodities

“…The commodity futures market is a significant part of the financial market, and it has been the focus of research for several researchers. Researchers have used various methodologies ranging from intensive analysis through simple statistical tools, as applied by Muravyev et al (2013) for analysing price discovery in equity options, to simple econometric tools like unit root test and autocorrelation test, as used by Nargunam and Anuradha (2017), price discovery metrics namely, Hasbrouck information share and Harris-McInish-Wood component share as proposed by Hasbrouck (1995) and Harris et al (2002aHarris et al ( , 2002b respectively to highly complicated tools like cointegration, causality test, variance decomposition, impulse response function, GARCH models, and so on, by various new generation researchers. After an extensive literature review, this study uses the following tools:…”

“…When the futures market efficiently discovers prices, the producers of commodities, depending on the prices in the futures market, can formulate strategies regarding quantity of production, time of delivery, holding of inventory and setting of prices. As correctly expressed by Nargunam and Anuradha (2017), when price is instantaneously detected on an efficient market, the market directs the evaluation of risk and return. In this way, investors are able to minimize risk to a certain extent.…”

Do Exchange Traded Funds in India Have Tracking and Pricing Efficiency?

“…There is a clear evidence of pricing inefficiencies and unexploited arbitrage opportunities in Indian ETF market which requires immediate action of the Regulator (Tripathi & Garg, 2016). Efficient Market Hypothesis (EMH) does not hold good in case of Indian ETFs and it requires the attention of market Regulator to achieve efficient price discovery (Nargunam & Anuradha, 2017).…”

“…Despite arbitrage constraints are low, investors could not reduce tracking error (Goel & Ahluwalia, 2021). The presence of arbitrage indicates market inefficiency (Tripathi & Garg, 2016) and requires the attention of market regulator (Nargunam & Anuradha, 2017).…”

“…The paper further confirms the varying tracking efficiencies of the fund managers of different ETFs. This evidence draws the attention of the market regulator and stock exchanges to improve market efficiency (Jares & Lavin, 2004;Nargunam & Anuradha, 2017). The rest of the paper is organized as follows.…”