Exchange Traded Funds and Stock Market Volatility

59 Pages Posted: 11 Feb 2015 Last revised: 24 Jul 2016

See all articles by Liao Xu

Liao Xu

Jiangxi University of Finance and Economics

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: May 28, 2016

Abstract

This study investigates the relationship between the volatility of stock market indexes and the trading volumes of their Exchange Traded Funds (ETFs). Using both OLS and GARCH approaches we demonstrate that the contemporaneous trading volume of S&P 500 ETFs is a key determinant of S&P 500 volatility at both monthly and daily frequencies. Vector autoregressive estimation on the other hand suggests a two-way Granger causality between S&P 500 volatility and the trading of S&P 500 ETFs. A replication analysis of other market indexes and the corresponding ETFs tracking these indexes confirms that these findings are robust.

Keywords: Exchange Traded Fund, Financial Market Index, Market Volatility, Trading Volume

JEL Classification: G12, G14

Suggested Citation

Xu, Liao and Yin, Xiangkang, Exchange Traded Funds and Stock Market Volatility (May 28, 2016). Available at SSRN: https://ssrn.com/abstract=2562704 or http://dx.doi.org/10.2139/ssrn.2562704

Liao Xu

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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