The Relation between Return and Volatility in ETFs Traded in Borsa Istanbul: Is There any Difference between Islamic and Conventional ETFs?

32 Pages Posted: 3 Nov 2018

See all articles by M. Kabir Hassan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Selim Kayhana

Konya Necmettin Erbakan University

Tayfur Bayatb

Inonu University - Department of Econometrics

Date Written: December 1, 2016

Abstract

In this study, we aim to analyze the relation between return and volatility in different types of exchange-traded funds (ETFs) traded in the Borsa Istanbul. The types we examine are Islamic stock index, conventional stock index, bond, commodity, and U.S. dollar ETFs. We employ the following battery of causality analysis methods that have different statistical advantages to each other: Toda-Yamamoto (1995); bootstrap based Hatemi-J (2005); volatility spillover, which allows investigating causality in variance; frequency domain, which decomposes causality due to different time frequencies; and asymmetric causality, developed by Hatemi-J, which enables finding causation linkages for different types of shocks in each variable. Although the results obtained from our analyses show that a negative relationship between return and volatility is valid for most ETF types, an asymmetric relation running from negative return shocks to positive volatility shocks is valid for only some conventional stock ETFs and U.S. dollar ETFs. On the other hand, Islamic ETFs and commodity ETFs have an asymmetric relation running from positive return shocks to negative volatility shocks. Our results show that the hypotheses investigated in this study vary with the ETF type included in the model.

Keywords: ETF, Islamic finance, Borsa Istanbul, Asymmetric causality

JEL Classification: G12, G23, C22

Suggested Citation

Hassan, M. Kabir and Kayhana, Selim and Bayatb, Tayfur, The Relation between Return and Volatility in ETFs Traded in Borsa Istanbul: Is There any Difference between Islamic and Conventional ETFs? (December 1, 2016). Available at SSRN: https://ssrn.com/abstract=3263385 or http://dx.doi.org/10.2139/ssrn.3263385

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Selim Kayhana

Konya Necmettin Erbakan University ( email )

Yenişehir Mah
Dr. Hulusi Baybal Cad. No:12
Selçuklu, Konya Kat:25
Turkey

Tayfur Bayatb

Inonu University - Department of Econometrics ( email )

Malatya
Turkey

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