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The Spillover And Leverage Effects Of Equity Exchange-Traded Notes (Etns)

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  • JO-HUI CHEN

    (Department of Finance, Chung Yuan Christian University, Chung-li, Taiwan)

  • JOHN FRANCIS DIAZ

    (Department of Finance and Department of Accounting, Chung Yuan Christian University, Chung-li, Taiwan)

Abstract

This research utilizes the Autoregressive Moving Average–General Autoregressive Conditional Heteroskedasticity (ARMA–GARCH) and Autoregressive Moving Average–Exponential General Autoregressive Conditional Heteroskedasticity (ARMA–EGARCH) in studying the spillover and leverage effects of returns and volatilities of seven equity exchange-traded notes (ETNs) and their tracked stock indices. This study finds positive returns transmissions between the two investment instruments. Unilateral influence and bilateral relationships also exist that may help investors in finding investment clues to approximate possible movements of ETNs about stock indices and vice versa. This paper also observes negative returns and volatility transmissions that may caution traders in the possible reversal of movement of the other instrument. Disinvestments, transfer of allocation, and inverse investing strategies are some of the possible reasons attributable to this negative relation.

Suggested Citation

  • Jo-Hui Chen & John Francis Diaz, 2019. "The Spillover And Leverage Effects Of Equity Exchange-Traded Notes (Etns)," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-17, September.
    • Handle: RePEc:wsi:gejxxx:v:19:y:2019:i:03:n:s2194565919500131
    DOI: 10.1142/S2194565919500131
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    Cited by:

    1. John, Alexander & DeVault, Luke, 2023. "Implicit leverage: Can accrued fees cause levered ETN returns?," Finance Research Letters, Elsevier, vol. 55(PB).

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