INFORMATION SPILLOVERS IN THE SPOT AND ETF INDICES IN TAIWAN

Chien-Cheng Wang, Yung-Shi Liau and Jack J.W. Yang

Global Journal of Business Research, 2009, vol. 3, issue 1, 117-131

Abstract: This paper empirically explores the impact of the spot index on the exchange trade fund (ETF) indices in Taiwan, with the vector autoregressive (VAR) model revealing positive relationships between the six time-series variables. Our results indicate that the ETF 52 index has the greatest volatility as well as the most negative returns, whilst also suggesting the existence of at least five cointegrating vectors among the variables; thus, through the concept of cointegration, we demonstrate that vectors will not arbitrarily wander far from each other in long-run relationships. We also examine Granger (1980) causality in the relationships between the variables and find that the guiding relationship exists within the spot index, with stronger indications of the spot index leading the ETF indices. Among the six time-series variables, depending on the decomposition of the forecast residual variance, the spot index is the least affected by external forces. Furthermore, the spot index is affected mainly by its own shocks, and less so by those of the other time-series variables. Although the spot index variance decomposition can identify all but its own excess shocks, none of the indices can consistently trace out the effects of one-unit impulses.

JEL-codes: G11 G13 G14 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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