Political, economic, and financial country risks and the volatility of the South African Exchange Traded Fund market: A GARCH-MIDAS approach

Damien Kunjal (), Faeezah Peerbhai () and Paul-Francois Muzindutsi ()
Additional contact information
Damien Kunjal: University of KwaZulu-Natal
Faeezah Peerbhai: University of KwaZulu-Natal
Paul-Francois Muzindutsi: University of KwaZulu-Natal

Risk Management, 2022, vol. 24, issue 3, No 3, 236-258

Abstract: Abstract Despite the soaring popularity of Exchange Traded Funds (ETFs) in South Africa, country risk may have a minimal or no effect on ETFs because ETF investors can use a wide variety of market timing activities to minimize their exposure to country risks. This study investigated the effect of political, economic, and financial components of country risk on the volatility of the South African ETF market. A GARCH-MIDAS approach was employed to analyse a sample of South African ETFs from November 2000 to December 2019. The ETF market was segregated into a market of ETFs with domestic benchmarks and a market of ETFs with international benchmarks. The findings suggest that country risk components are significant sources of volatility in ETF markets except for financial risk which does not significantly impact ETFs with international benchmarks suggesting that these ETFs can be used to minimize an investor’s exposure to financial risk. Overall, this study provides new insight into the use of ETFs to diversify an investor’s exposure to different country risk components.

Keywords: Economic risk; Exchange Traded Fund; Financial risk; GARCH-MIDAS; Market volatility; Political risk (search for similar items in EconPapers)
JEL-codes: E44 G10 G11 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1057/s41283-022-00093-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:risman:v:24:y:2022:i:3:d:10.1057_s41283-022-00093-y

Ordering information: This journal article can be ordered from
https://www.palgrave.com/gp/journal/41283

DOI: 10.1057/s41283-022-00093-y

Access Statistics for this article

Risk Management is currently edited by Igor Loncarski

More articles in Risk Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().