A1223
Title: ETFs, stochastic dominance and market efficiency
Authors: Ioannis Psaradellis - University of Edinburgh (United Kingdom) [presenting]
Nikolas Topaloglou - Athens University of Economics and Business (Greece)
Abstract: The market efficiency of active mutual funds and ETFs is investigated relative to their stock ownership using a stochastic dominance approach that extends the mean-variance framework. In particular, stochastic bound portfolios are constructed from fund holdings, and those portfolios' dominance is assessed against the reference portfolio set of the traded mutual funds and ETFs. The improvement in investment performance and enhanced benchmarking are examined using funds' reference sets and stochastic bounds on fund ownership. Empirical results using both parametric and non-parametric tests indicate that the stochastic bound portfolios dominate the reference portfolio set. The results are significant both in-sample and out-of-sample.
