Exchange Traded Funds and Stock Market Volatility

36 Pages Posted: 7 Dec 2017

See all articles by Liao Xu

Liao Xu

Zhejiang Gongshang University (ZJGSU)

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

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 ordinary least squares and generalized autoregressive conditional heteroskedasticity 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.

Suggested Citation

Xu, Liao and Yin, Xiangkang, Exchange Traded Funds and Stock Market Volatility (December 2017). International Review of Finance, Vol. 17, Issue 4, pp. 525-560, 2017, Available at SSRN: https://ssrn.com/abstract=3083208 or http://dx.doi.org/10.1111/irfi.12121

Liao Xu (Contact Author)

Zhejiang Gongshang University (ZJGSU) ( email )

Zhejiang
China

Xiangkang Yin

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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