Do large-cap exchange-traded funds perform better than their small-cap counterparts in extreme market conditions?☆

Abbas Valadkhani

Global Finance Journal, 2022, vol. 53, issue C

Abstract: This study proposes a new threshold model that differentiates between the size and sign-dependent responses of large- and small-cap exchange-traded funds (ETFs) to changes in extreme market conditions. The asymmetric returns in extreme upsides, extreme downsides, and “in-between” markets are estimated using three sets of betas. Findings support the notion that small-cap ETFs in all seven countries fall more in extreme downturns than they rise in extreme upturns. By contrast, six out of nine large-cap ETFs climb up in upside more than they fall in downswing. Therefore, investors should be cautious when assigning excessive weights to small-cap ETFs in their portfolio.

Keywords: Exchange-traded fund; Beta; Asymmetry; Market capitalization; Nasdaq; S&P500 (search for similar items in EconPapers)
JEL-codes: E44 G11 G23 G32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:53:y:2022:i:c:s104402832200045x

DOI: 10.1016/j.gfj.2022.100743

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