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A SHORT-RUN ANALYSIS OF RECENT EUROPEAN ETFS’ EFFECT ON THE EURO STOXX 50 INDEX WEAK-FORM EFFICIENCY
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2022-08-31
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en
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A High Frequency, Short-Lengthen Study of the EURO STOXX 50 Index Weak-Form Efficiency Within Turmoil and the Effect of European ETF’s Trading Volume
I study the effect of European ETFs’ trading on the EURO STOXX 50 index, although the presence of ETFs is still limited in Europe. U.S. (Xu & Yin, 2016) and Chinese (Xu & Pu, 2021) studies suggest a positive and significative effect since informed traders act first in ETFs markets, becoming a price discovery source for the underlying stock markets. Firstly, I calculate the index weak-form efficiency, through random walk measures, with 1-minute returns. The timeframe is three months within the Ukraine’s Russian invasion, inflation, energy crisis and a weakened euro. Thus, Lagrange Multiplier tests statistics are more reliable. While the Serial Correlation, Runs Tests and Unit Root tests suggest returns’ non-predictability; the Lo & Mackinlay (1988) Variance Ratio indicate random walk inexistence. Thus, the index is weak-form efficiency is not met. The second part of the analysis is focused on the impact of the main European ETFs’ daily trading volume on the daily index efficiency Serial Correlation and Variance Ratio absolute coefficients. I find a negative but not significant effect on the same day; on the next day the effect is positive but still not significant. However, two days after, a tiny positive and significant effect is observed, which vanishes gradually.
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Faculteit der Managementwetenschappen