Are US-Dollar-Hedged-ETF investors aggressive on exchange rates? A panel VAR approach

Corey Shank and Andre Vianna

Research in International Business and Finance, 2016, vol. 38, issue C, 430-438

Abstract: Exchange traded funds (ETFs) are a multi-trillion dollar market that epitomizes financialization due to its recent growth. This study examines the behavior of U.S. listed currency hedged ETF investors towards changes in the underlying benchmark and foreign exchange rate from July 2011 to November 2015 using a panel VAR approach. We find that investors are able to anticipate changes in future exchange rates and invest in currency hedged ETFs prior to changes. Granger-causality tests confirm that these investors proactively trade before large real exchange rate movements. These results suggest that the use of financial instruments such as ETFs to hedge against exchange rate volatility may have itself become a source of volatility, which have implications for the further financialization of the ETF industry.

Keywords: ETFs; Financialization; Trading volume; Exchange rates; Investor behavior (search for similar items in EconPapers)
JEL-codes: E44 F31 G11 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:38:y:2016:i:c:p:430-438

DOI: 10.1016/j.ribaf.2016.05.002

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