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Application of Diffusion Models in the Analysis of Financial Markets: Evidence on Exchange Traded Funds in Europe

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  • Adam Marszk

    (Faculty of Management and Economics, Gdansk University of Technology, Narutowicza 11/12, 80-233 Gdansk, Poland)

  • Ewa Lechman

    (Faculty of Management and Economics, Gdansk University of Technology, Narutowicza 11/12, 80-233 Gdansk, Poland)

Abstract

Exchange traded funds (ETFs) are financial innovations that may be considered as a part of the index financial instruments category, together with stock index derivatives. The aim of this paper is to explore the trajectories and formulates predictions regarding the spread of ETFs on the financial markets in six European countries. It demonstrates ETFs’ development trajectories with regard to stock index futures and options that may be considered as their substitutes, e.g., in risk management. In this paper, we use mathematical models of the diffusion of innovation that allow unveiling the evolutionary patterns of turnover of ETFs; the time span of the analysis is 2004–2015, i.e., the period of dynamic changes on the European ETF markets. Such an approach has so far rarely been applied in this field of research. Our findings indicate that the development of ETF markets has been strongest in Italy and France and weaker in the other countries, especially Poland and Hungary. The results highlight significant differences among European countries and prove that diffusion has not taken place in all the cases; there are also considerable differences in the predicted development paths.

Suggested Citation

  • Adam Marszk & Ewa Lechman, 2020. "Application of Diffusion Models in the Analysis of Financial Markets: Evidence on Exchange Traded Funds in Europe," Risks, MDPI, vol. 8(1), pages 1-23, February.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:1:p:18-:d:320561
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    References listed on IDEAS

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    1. Marszk, Adam & Lechman, Ewa, 2021. "Reshaping financial systems: The role of ICT in the diffusion of financial innovations – Recent evidence from European countries," Technological Forecasting and Social Change, Elsevier, vol. 167(C).

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