Date of Award


Document Type

Dissertation - Open Access

Degree Type


Degree Name

Doctor of Business Administration (DBA)


Dr. Brian Walkup

Second Advisor

Dr. Halil Kiymaz

Third Advisor

Dr. Koray Simsek


Exchange-Traded Funds (ETF), Index Inclusion Effect


Considerable growth in passive investing and the use of the exchange-traded fund (ETF) introduce potential impacts to markets. Prior research is inconclusive on their effects on market efficiency. Beginning with Shleifer (1986) and Harris & Gurel (1986) and extending through studies such as Petajisto (2011), researchers have evidence of indexing influencing market efficiency. The index inclusion effect is studied using the inclusion (deletions) events from the S&P 500 index. This dissertation systematically works through passive investing or indexing to the exchange-traded fund (ETF), focusing on their effect on underlying assets' markets. By extending event studies for testing the market's efficiency from 1993 to 2021, this study investigates ETFs' influence on underlying assets' markets through the index inclusion effect. In addition to expanding the index inclusion event studies through 2021, ETFs' involvement in the mispricing event is explored by analyzing the relationship between their underlying asset ownership and abnormal returns. This study finds that although the S&P 500 index inclusion effect generates abnormal returns, similar to prior research, the effect has largely disappeared over the last decade. Additionally, there is a statistically significant relationship between the decreasing magnitude of abnormal returns and the growth of ETFs. Finally, using an original price discovery method this study shows that there is no significant return difference between ETFs that can avoid buying and selling at disadvantage pricing introduced by the index inclusion effect and other less flexible ETFs.