Are Global Exchange Traded Fund Pretentious on Exchange Rate Fluctuation? A Study Using GARCH Model

Investment Management and Financial Innovations, 17(4), 356-366. doi:10.21511/imfi.17(4).2020.30

12 Pages Posted: 14 Jan 2021

See all articles by Geeta E

Geeta E

affiliation not provided to SSRN

Iqbal Thonse Hawaldar

Kingdom University

Vidya Bai G

affiliation not provided to SSRN

Mendon Suhan

affiliation not provided to SSRN

Rajesha T.M.

affiliation not provided to SSRN

Date Written: December 17, 2020

Abstract

Investors invest in a foreign market to reap the benefits of currency differences. The change in the value of underlying assets affects these hedged funds and, at the same time, restricts investors from higher return possible in unhedged funds. This study aims to examine the performance of most actively traded shares in Exchange Traded Fund and any influence, along with tracking the information from the index. This study also analyzes the currency fluctuation and its impact on returns and volatility of ETF and index. The equity ETF, which tracks NASDAQ (NDX 100), is chosen for the study, and the data analysis is carried out using statistical methods such as correlation, regression, and GARCH model. The study utilizes the currency rate data from 2013 to 2018 of USD, GBP, and INR and examines its effect on the NDX (NASDAQ). The study emphasizes whether the ETF as a basket of securities is insensitive to currency rate fluctuations. It is found that the response of ETF to the currency movements is likely due to its underlying index. The study concludes that Motilal Oswal shares in NASDAQ 100 ETF are highly sensitive to the NDX 100 movements; thus, there is no direct impact between ETF and index performance through exchange rate fluctuation.

Keywords: ETFs, global ETF, exchange rate, equity ETF, macroeconomy, financial investment in India, exchange traded fund in India

JEL Classification: E44, F31, G11, G12

Suggested Citation

E, Geeta and Hawaldar, Iqbal Thonse and Bai G, Vidya and Suhan, Mendon and T.M., Rajesha, Are Global Exchange Traded Fund Pretentious on Exchange Rate Fluctuation? A Study Using GARCH Model (December 17, 2020). Investment Management and Financial Innovations, 17(4), 356-366. doi:10.21511/imfi.17(4).2020.30, Available at SSRN: https://ssrn.com/abstract=3750985

Geeta E

affiliation not provided to SSRN

Iqbal Thonse Hawaldar (Contact Author)

Kingdom University ( email )

Sanad
Bahrain

Vidya Bai G

affiliation not provided to SSRN

Mendon Suhan

affiliation not provided to SSRN

Rajesha T.M.

affiliation not provided to SSRN

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