Performance and Efficiency of the Nordic Exchange Traded Fund Market

Sammanfattning: ETFs are experiencing rapid growth as a passive investment instrument. Due to the recent MiFID II and PRIIPS regulations, Nordic ETFs are becoming increasingly relevant for European investors. With the purpose of informing investors about the dynamics of the Nordic ETF market, this paper studies the performance and efficiency of 17 leveraged and unleveraged Nordic equity ETFs. We analyse the return, tracking efficiency and pricing efficiency of the funds, how the leveraged and unleveraged ETFs behave differently and how Nordic ETFs differ from ETFs in other markets. The results show that while unleveraged Nordic ETFs generally underperform their benchmarks by 1% every year, they experience a higher tracking and pricing efficiency than ETFs studied in other markets. As a result of a generally bullish market, we see that it has been more attractive to hold bull ETFs than bear ETFs in the long term. The tracking efficiency of leveraged ETFs is shown to differ between funds, where some funds manage to hold their multiple for a holding period of one month. We also see that price deviations behave differently between bull and bear ETFs. While both tracking error and price deviation are found to be persistent, their determinants differ. Price deviation is found to be negatively correlated to liquidity, fund size and fund flow, while tracking error is positively correlated to expense ratio.