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

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Listed:
  • HASSAN, M. KABIR

    () (University of New Orleans)

  • KAYHANA, SELIM

    () (Necmettin Erbakan University)

  • BAYATB, TAYFUR

    () (Inonu University)

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.

Suggested Citation

  • Hassan, M. Kabir & Kayhana, Selim & Bayatb, Tayfur, 2016. "The Relation between Return and Volatility in ETFs Traded in Borsa Istanbul: Is there any Difference between Islamic and Conventional ETFs?," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 24, pages 45-76.
  • Handle: RePEc:ris:isecst:0157
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    References listed on IDEAS

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    More about this item

    Keywords

    ETF; Islamic finance; Borsa Istanbul; Asymmetric causality;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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