Pricing and Liquidity of Fixed Income ETFs in the Covid-19 Virus Crisis of 2020

Laipply, Stephen; Madhavan, Ananth

doi:10.3905/jii.2020.1.096

Cited by 5 publications

(1 citation statement)

References 6 publications

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“…[21][22][23][24][25][26] ETFs mirror the returns of underlying indices, with their sensitivity to the underlying index expected to remain consistent across market regimes. Except for a few studies in advanced economies, [27][28][29] the effect of COVID-19 on ETF performance has received insufficient attention in Indian research to date. We seek to fill this research void following questions:…”

Section: Introductionmentioning

confidence: 99%

Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance

Malhotra

Sinha

2023

Metamorphosis: A Journal of Management Research

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Since their inception in 2002, exchange-traded funds (ETFs) in India have made significant progress. The lacklustre record of active investing and the dual benefits of low-cost diversification have elevated the asset class’s credibility. During the COVID-19 crisis, equities ETFs have demonstrated greater resilience than other investment options. Our examination of 35 ETFs that mirror broader indices indicates the performance of Indian ETFs amid the economic shock caused by COVID-19. A comprehensive analysis of the daily NAV, trading price, and benchmark price data from 2015 to the present, post-identification of the pandemic period, indicates three significant inferences: First, tracking errors persist, with significant increases in all three tracking measures throughout the COVID-19 period. Second, during the COVID-19 period, the existence of pricing inefficiencies transitions from discount to premium, with an average daily value of 57.485. Nonetheless, the rate of short-term disequilibrium corrections accelerates dramatically during the COVID-19 phase. Thirdly, it took only eight days during COVID-19 to erase 50% of the disequilibrium between NAV and market price, compared to 170 days before COVID-19. During the COVID-19 era, we also notice a rise in the co-integration between ETF returns and benchmark performance and an increase in the adjustment rate from 18% to 61% per unit of time. The research findings provide portfolio managers and regulators with a comprehensive view of the performance of ETFs before and after an economic shock and offer educational benefits to a growing investor base.

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