THE SPILLOVER, RISK AND LEVERAGE EFFECTS OF SMART BETA MANAGEMENT EXCHANGE-TRADED FUND (ETF)

Jo-Hui Chen () and Nicholas Edwards ()
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Jo-Hui Chen: Department of Finance, Chung Yuan Christian University, Zhongli 32023, Taiwan
Nicholas Edwards: College of Business, Chung Yuan Christian University, Zhongli 32023, Taiwan

Global Economy Journal (GEJ), 2021, vol. 21, issue 03, 1-24

Abstract: This research uses two different GARCH models to measure spillover, risk, and leverage effects of active, passive, and smart beta management Exchange-traded Funds (ETFs). The increase in popularity of ETFs and new categories within them, specifically the growth of smart beta management, means asset managers and investors have new metrics to account for when determining portfolio exposure following the Adaptive Investment Approach (AIA). The results show significant relationships among all groups regarding the spillover. A trend of positive multi-lateral spillover of returns among the three management types including passive, active and small beta is observed with smart beta showing the highest percentage of a bi-lateral positive effect. The strongest spillover of volatility effects is among the actively managed ETFs. The testing of risk results is insignificant, but the leverage effect results are consistent with the past studies showing the significant negative bi-lateral effect.

Keywords: Spillover effect; ETFs; smart beta; ETF management (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2194565921500160

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