LABEL CO-MOVEMENT: COMPONENT STOCK INCLUSION AND EXCLUSION BETWEEN DIFFERENT EXCHANGE-TRADED FUNDS

Chun-An Li, Min-Ching Lee and Ju-Hua Liu

The International Journal of Business and Finance Research, 2018, vol. 12, issue 1, 39-56

Abstract: This study examines the co-movement phenomenon in Taiwan’s stock markets. We investigate this phenomenon both before and after the inclusion and exclusion of component stocks from the Taiwan 50 or Taiwan 100 indices in terms of changes in component stock returns and turnover co-movement relationships. In addition to providing a sample analysis, this study explores consistency in changes to comovement relationships owing to market status (bull or bear) or investor sentiment (overly optimistic, optimistic, pessimistic, and overly pessimistic). The empirical results reflect the stocks’ returns or turnover. For example, apart from periods of overly pessimistic sentiment, including and excluding components in the Taiwan 100 or Taiwan 50 indices generally reveals a strengthened co-movement relationship with the new group and a weakened link with the original group, regardless of a bull or bear market. The result is consistent with Boyer’s (2011) label argument on co-movement. However, a subtler perspective reveals a rather insignificant change in the co-movement relationship for stock returns as components move from the Taiwan 50 to the Taiwan 100 index

Keywords: Co-Movement; Label Effect; Exchange-Traded Funds (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2018
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