IDEAS home Printed from https://ideas.repec.org/a/sae/vision/v25y2021i3p350-360.html
   My bibliography  Save this article

Investigating the Dynamics of Exchange Traded Funds Across the Bear and Bull Markets: Evidence from Indian Equity ETFs

Author

Listed:
  • Prabhdeep Kaur
  • Jaspal Singh
  • Sidharath Seth

Abstract

The present study attempts to examine the tracking ability of Indian equity exchange traded funds (ETFs) across the bearish and bullish market regimes. Also, ETFs’ sensitivity to their respective underlying indices across the two market conditions is examined so as to gain an insight into the differences in risk exposure under the two regimes using DBM. The results found that the tracking error (TE) of ETFs varies across the two market regimes with it higher during the bullish regime. At the same time, ETFs’ responsiveness to their underlying indices is found to be higher during the bearish market regime, which justifies the existence of lower TE during the bearish regime. NIFTYBEES, KOTAKNIFTY and BANKBEES emerged to be the top three performers in terms of tracking efficiency. Further, NIFTYBEES, BANKBEES and JUNIORBEES are reported to provide significantly positive excess returns during the bullish regime. As such, investors considering investment in equity ETFs can opt for the top performing funds where they also stand a chance to earn excess return (in few cases). Also, it is observed the beta coefficients of ETFs varied significantly from unity. It suggests that the ETFs and their respective underlying indices are not subject to similar systematic risk.

Suggested Citation

  • Prabhdeep Kaur & Jaspal Singh & Sidharath Seth, 2021. "Investigating the Dynamics of Exchange Traded Funds Across the Bear and Bull Markets: Evidence from Indian Equity ETFs," Vision, , vol. 25(3), pages 350-360, September.
  • Handle: RePEc:sae:vision:v:25:y:2021:i:3:p:350-360
    DOI: 10.1177/09722629211007581
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/09722629211007581
    Download Restriction: no

    File URL: https://libkey.io/10.1177/09722629211007581?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Theobald, Michael, 1981. "Beta Stationarity and Estimation Period: Some Analytical Results," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(5), pages 747-757, December.
    2. Wiggins, James B, 1992. "Betas in Up and Down Markets," The Financial Review, Eastern Finance Association, vol. 27(1), pages 107-123, February.
    3. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    4. Ravinder K. Bhardwaj & LeRoy D. Brooks, 1993. "Dual Betas From Bull And Bear Markets: Reversal Of The Size Effect," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 269-283, December.
    5. Saumitra N. Bhaduri & S. Raja Sethu Durai, 2006. "Asymmetric beta in bull and bear market conditions: evidences from India," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(1), pages 55-59, January.
    6. Edwin J. Elton, 2002. "Spiders: Where Are the Bugs?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 453-472, July.
    7. Alexander, Gordon J. & Chervany, Norman L., 1980. "On the Estimation and Stability of Beta," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(1), pages 123-137, March.
    8. Howton, Shelly W & Peterson, David R, 1998. "An Examination of Cross-Sectional Realized Stock Returns Using a Varying-Risk Beta Model," The Financial Review, Eastern Finance Association, vol. 33(3), pages 199-212, August.
    9. Chen, Son-Nan, 1982. "An Examination of Risk-Return Relationship in Bull and Bear Markets Using Time-Varying Betas," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(2), pages 265-286, June.
    10. Agapova, Anna, 2011. "Conventional mutual index funds versus exchange-traded funds," Journal of Financial Markets, Elsevier, vol. 14(2), pages 323-343, May.
    11. Kim, Moon K. & Zumwalt, J. Kenton, 1979. "An Analysis of Risk in Bull and Bear Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(5), pages 1015-1025, December.
    12. Jack W Aber & Dan Li & Luc Can, 2009. "Price volatility and tracking ability of ETFs," Journal of Asset Management, Palgrave Macmillan, vol. 10(4), pages 210-221, October.
    13. George Woodward & Heather Anderson, 2009. "Does beta react to market conditions? Estimates of 'bull' and 'bear' betas using a nonlinear market model with an endogenous threshold parameter," Quantitative Finance, Taylor & Francis Journals, vol. 9(8), pages 913-924.
    14. Fabozzi, Frank J & Francis, Jack C, 1979. "Mutual Fund Systematic Risk for Bull and Bear Markets: An Empirical Examination," Journal of Finance, American Finance Association, vol. 34(5), pages 1243-1250, December.
    15. James M. Poterba & John B. Shoven, 2002. "Exchange-Traded Funds: A New Investment Option for Taxable Investors," American Economic Review, American Economic Association, vol. 92(2), pages 422-427, May.
    16. Gerhard Bry & Charlotte Boschan, 1971. "Programmed Selection of Cyclical Turning Points," NBER Chapters, in: Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, pages 7-63, National Bureau of Economic Research, Inc.
    17. Baesel, Jerome B, 1974. "On the Assessment of Risk: Some Further Considerations," Journal of Finance, American Finance Association, vol. 29(5), pages 1491-1494, December.
    18. Mohammad Sharifzadeh & Simin Hojat, 2012. "An analytical performance comparison of exchange-traded funds with index funds: 2002–2010," Journal of Asset Management, Palgrave Macmillan, vol. 13(3), pages 196-209, June.
    19. Hays, Patrick A. & Upton, David E., 1986. "A Shifting Regimes Approach to the Stationarity of the Market Model Parameters of Individual Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(3), pages 307-321, September.
    20. Nafis Alam, 2013. "A comparative performance analysis of conventional and Islamic exchange-traded funds," Journal of Asset Management, Palgrave Macmillan, vol. 14(1), pages 27-36, February.
    21. Fabozzi, Frank J. & Francis, Jack Clark, 1978. "Beta as a Random Coefficient," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(1), pages 101-116, March.
    22. Fabozzi, Frank J & Francis, Jack Clark, 1977. "Stability Tests for Alphas and Betas over Bull and Bear Market Conditions," Journal of Finance, American Finance Association, vol. 32(4), pages 1093-1099, September.
    23. Gerhard Bry & Charlotte Boschan, 1971. "Foreword to "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs"," NBER Chapters, in: Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, pages -1, National Bureau of Economic Research, Inc.
    24. Bhardwaj, Ravinder K & Brooks, LeRoy D, 1993. "Dual Betas from Bull and Bear Markets: Reversal of the Size Effect," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 269-283, Winter.
    25. Adrian R. Pagan & Kirill A. Sossounov, 2003. "A simple framework for analysing bull and bear markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 23-46.
    26. Syed Abuzar Moonis & Ajay Shah, 2003. "Testing for Time-variation in Beta in India," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 2(2), pages 163-180, May.
    27. Mai Shibata, 2014. "The Influence of Japan’s Unsecured Overnight Call Rate on Bull and Bear Markets and Market Turns," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 21(4), pages 331-349, November.
    28. Shin, Sangheon & Soydemir, Gökçe, 2010. "Exchange-traded funds, persistence in tracking errors and information dissemination," Journal of Multinational Financial Management, Elsevier, vol. 20(4-5), pages 214-234, December.
    29. Blitz, David & Huij, Joop, 2012. "Evaluating the performance of global emerging markets equity exchange-traded funds," Emerging Markets Review, Elsevier, vol. 13(2), pages 149-158.
    30. Karen Wong & Wai Cheong Shum, 2010. "Exchange-traded funds in bullish and bearish markets," Applied Economics Letters, Taylor & Francis Journals, vol. 17(16), pages 1615-1624.
    31. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, August.
    32. Christian S. Pedersen & Soosung Hwang, 2007. "Does downside beta matter in asset pricing?," Applied Financial Economics, Taylor & Francis Journals, vol. 17(12), pages 961-978.
    33. Blume, Marshall E, 1971. "On the Assessment of Risk," Journal of Finance, American Finance Association, vol. 26(1), pages 1-10, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Priya Malhotra & Pankaj Sinha, 2023. "Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance," Metamorphosis: A Journal of Management Research, , vol. 22(1), pages 38-54, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Woodward, George & Marisetty, Vijaya B., 2005. "Introducing non-linear dynamics to the two-regime market model: Evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(4-5), pages 559-581, September.
    2. Fredj Jawadi & Wael Louhichi & Abdoulkarim Idi Cheffou & Hachmi Ben Ameur, 2019. "Modeling time-varying beta in a sustainable stock market with a three-regime threshold GARCH model," Annals of Operations Research, Springer, vol. 281(1), pages 275-295, October.
    3. Damien Kunjal & Faeezah Peerbhai & Paul-Francois Muzindutsi, 2021. "The performance of South African exchange traded funds under changing market conditions," Journal of Asset Management, Palgrave Macmillan, vol. 22(5), pages 350-359, September.
    4. Deepak Chawla, 2003. "Stability of Alphas and Betas over Bull and Bear Markets: An Empirical Examination," Vision, , vol. 7(2), pages 57-77, July.
    5. Szczepocki Piotr, 2019. "Clustering Companies Listed on the Warsaw Stock Exchange According to Time-Varying Beta," Econometrics. Advances in Applied Data Analysis, Sciendo, vol. 23(2), pages 63-79, June.
    6. Kokoszka Piotr & Miao Hong & Zheng Ben, 2017. "Testing for asymmetry in betas of cumulative returns: Impact of the financial crisis and crude oil price," Statistics & Risk Modeling, De Gruyter, vol. 34(1-2), pages 33-53, June.
    7. Kundu, Srikanta & Sarkar, Nityananda, 2016. "Return and volatility interdependences in up and down markets across developed and emerging countries," Research in International Business and Finance, Elsevier, vol. 36(C), pages 297-311.
    8. Srikanta Kundu & Nityananda Sarkar, 2016. "Is the Effect of Risk on Stock Returns Different in Up and Down Markets? A Multi-Country Study," International Econometric Review (IER), Econometric Research Association, vol. 8(2), pages 53-71, September.
    9. Don U.A. Galagedera, 2004. "A survey on risk-return analysis," Finance 0406010, University Library of Munich, Germany.
    10. Ntantamis, Christos & Zhou, Jun, 2015. "Bull and bear markets in commodity prices and commodity stocks: Is there a relation?," Resources Policy, Elsevier, vol. 43(C), pages 61-81.
    11. Dębski Wiesław & Feder-Sempach Ewa & Świderski Bartosz, 2016. "Beta Stability Over Bull and Bear Market on the Warsaw Stock Exchange," Folia Oeconomica Stetinensia, Sciendo, vol. 16(1), pages 75-92, December.
    12. Hwang, Soosung & Pedersen, Christian S., 2004. "Asymmetric risk measures when modelling emerging markets equities: evidence for regional and timing effects," Emerging Markets Review, Elsevier, vol. 5(1), pages 109-128, March.
    13. António Afonso & Pedro Cardoso, 2017. "Exchange-traded Funds as an Alternative Investment Option: a Case Study," Working Papers REM 2017/22, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    14. George Woodward & Heather Anderson, 2009. "Does beta react to market conditions? Estimates of 'bull' and 'bear' betas using a nonlinear market model with an endogenous threshold parameter," Quantitative Finance, Taylor & Francis Journals, vol. 9(8), pages 913-924.
    15. Terence Tai-Leung Chong & Zimu Li & Haiqiang Chen & Melvin Hinich, 2010. "An investigation of duration dependence in the American stock market cycle," Journal of Applied Statistics, Taylor & Francis Journals, vol. 37(8), pages 1407-1416.
    16. Priya Malhotra & Pankaj Sinha, 2023. "Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance," Metamorphosis: A Journal of Management Research, , vol. 22(1), pages 38-54, June.
    17. Peter Xu & Rich Pettit, 2014. "No-arbitrage conditions and expected returns when assets have different β’s in up and down markets," Journal of Asset Management, Palgrave Macmillan, vol. 15(1), pages 62-71, February.
    18. Jaspal Singh & Prabhdeep Kaur, 2016. "Tracking Efficiency of Exchange Traded Funds (ETFs)," Paradigm, , vol. 20(2), pages 176-190, December.
    19. Chowdhury, Biplob & Jeyasreedharan, Nagaratnam & Dungey, Mardi, 2018. "Quantile relationships between standard, diffusion and jump betas across Japanese banks," Journal of Asian Economics, Elsevier, vol. 59(C), pages 29-47.
    20. Di Iorio, Amalia & Faff, Robert, 2000. "An analysis of asymmetry in foreign currency exposure of the Australian equities market," Journal of Multinational Financial Management, Elsevier, vol. 10(2), pages 133-159, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:vision:v:25:y:2021:i:3:p:350-360. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.