Pricing efficiency of exchange traded funds in Taiwan

Abstract

The first and to date the only Taiwanese exchange traded fund (ETF), the Taiwan Top 50 Tracker Fund (TTT), was introduced in June 2003 and used the Taiwan 50 Index as its benchmark asset, which includes the top 50 listed companies by total market capitalisation. This study introduces the characteristics and underlying index of the TTT. Empirical results indicate that the TTT is pricing efficient, and trading of the TTT produces almost identical returns to the Taiwan stock market. As the MSCI Emerging Markets Index covers Taiwan, international capital includes the Taiwan market in their global asset allocation. The TTT provides a convenient instrument replicating the performance of Taiwan stock market.