TESTING PRICE PRESSURE, INFORMATION, FEEDBACK TRADING, AND SMOOTHING EFFECTS FOR ENERGY EXCHANGE TRADED FUNDS

Chia-Lin Chang () and Yu-Pei Ke ()
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Yu-Pei Ke: Department of Applied Economics, National Chung Hsing University, Taiwan, 250, Kuo Kuang Road, Taichung 402, Taiwan

Annals of Financial Economics (AFE), 2014, vol. 09, issue 02, 1-26

Abstract: This paper examines the relationships between flows and returns for five exchange traded funds (ETF) in the U.S. energy sector. Four alternative hypotheses are tested, including the price pressure hypothesis, information (or price release) hypothesis, feedback trading hypothesis, and smoothing hypothesis. The five ETF are the Energy Select Sector SPDR Fund (XLE), iShares U.S. Energy ETF (IYE), iShares Global Energy ETF (IXC), Vanguard Energy ETF (VDE), and PowerShares Dynamic Energy Exploration & Production Portfolio (PXE). A vector autoregressive (VAR) model is used to analyze the relationships between energy flows and returns. The empirical results show that energy ETF flows and subsequent returns have a negative relationship, thereby supporting the smoothing hypothesis. Moreover, the smoothing effect exists for XLE and IYE during the global financial crisis. Regardless of whether the whole sample period or the sub-samples before, during and after the global financial crisis are used, no evidence is found in support of the price pressure hypothesis, information hypothesis, or feedback trading hypothesis.

Keywords: Energy exchange traded funds (ETF); price pressure hypothesis; information hypothesis; feedback trading hypothesis; smoothing hypothesis; G14; G15; C32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Working Paper: Testing Price Pressure, Information, Feedback Trading, and Smoothing Effects for Energy Exchange Traded Funds (2014)
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DOI: 10.1142/S2010495214400065

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