Market efficiency: do listed private equity ETFs adapt?

Abstract

Purpose – This research provides a comprehensive analysis of market efficiency under the efficient market hypothesis (EMH) and adaptive market hypothesis (AMH) frameworks within the listed private equity (LPE) market. An underexplored area in financial research, LPE provides the unique combination of traditional private equity’s high return potential and the liquidity of public markets. The opaqueness of daily valuing of private equity investments could result in market inefficiencies due to frictions even in public markets. Design/methodology/approach – The preliminary analysis uses the Ljung–Box, variance ratio and non-parametric runs tests for evidence of the random walk for returns under the EMH framework. We then incorporate more rigorous methods such as the automatic portmanteau, automatic variance ratio and generalized spectral tests. Extending to the AMH framework, we utilize a rolling window approach (e.g. Lo, 2004) and estimate the more robust tests to detect periods of efficiency over time using daily returns. Finally, a wavelet cohesion analysis provides insight into the interdependence within the three regional LPE indices. Findings – Initial evidence against efficient markets across the LPE indices under the EMH framework exists. However, using rolling windows (i.e. AMH) and tests incorporating linear and non-linear serial dependence suggests that LPE funds have become more efficient over time. LPE is understudied, and a better understanding of these alternative investment types is important for academics and practitioners. Research limitations/implications – The research has limitations. The data for alternative investments, such as private equity, is subject to data smoothing (Baz et al., 2022) and survivorship bias (Bilo et al., 2005). Additionally, our research does not causally explain what causes the LPE indices to become efficient or inefficient. We leave this for future research. Originality/value – We use daily return series from July 2007 through June 2023 of five prominent LPE index ETFs sourced from the LPX Group. To the best of our knowledge, this is the first research to study the market efficiency and adaptive market hypothesis for listed private equity (LPE) markets using daily returns as well as more rigorous empirical methods such as the automatic portmanteau, automatic variance ratio and generalized spectral tests to investigate. It is also the first to use wavelet cohesion analysis and rolling window methods for LPE funds.

Department(s)

Finance, Economics and Risk Management

Document Type

Article

DOI

10.1108/MF-07-2024-0542

Keywords

Adaptive market hypothesis, Alternative investments, Listed private equity, Stock market efficiency

Publication Date

1-20-2026

Journal Title

Managerial Finance

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