EconPapers    
Economics at your fingertips  
 

Connecting VIX and Stock Index ETF with VAR and Diagonal BEKK

Chia-Lin Chang (), Tai-Lin Hsieh and Michael McAleer
Additional contact information
Tai-Lin Hsieh: Department of Applied Economics, National Chung Hsing University Taiwan.

No 2018-26, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: As stock market indexes are not tradeable, the importance and trading volume of Exchange Traded Funds (ETFs) cannot be understated. ETFs track and attempt to replicate the performance of a specific index. Numerous studies have demonstrated a strong relationship between the S&P500 Composite Index and the Volatility Index (VIX), but few empirical studies have focused on the relationship between VIX and ETF returns. The purpose of the paper is to investigate whether VIX returns affect ETF returns by using vector autoregressive (VAR) models to determine whether daily VIX returns with different moving average processes affect ETF returns. The ARCH-LM test shows conditional heteroskedasticity in the estimation of ETF returns, so that the diagonal BEKK model is used to accommodate multivariate conditional heteroskedasticity in the VAR estimates of ETF returns. Daily data on ETF returns that follow different stock indexes in the USA and Europe are used in the empirical analysis, which is presented for the full data set, as well as for the three sub-periods Before, During, and After the Global Financial Crisis. The estimates show that daily VIX returns have: (1) significant negative effects on European ETF returns in the short run; (2) stronger significant effects on single market ETF returns than on European ETF returns; and (3) lower impacts on the European ETF returns than on S&P500 returns. For the European Markets, the estimates of the mean equations tend to differ between the whole sample period and the sub-periods, but the estimates of the matrices A and B in the Diagonal BEKK model are quite similar for the whole sample period and at least two of the three sub-periods. For the US Markets, the estimates of the mean equations also tend to differ between the whole sample period and the sub-periods, but the estimates of the matrices A and B in the Diagonal BEKK model are very similar for the whole sample period and the three sub-periods.

Keywords: Stock market indexes; Exchange Traded Funds; Volatility Index (VIX); Global Financial Crisis; Vector Autoregressions; Moving Average processes; Conditional Heteroskedasticity; Diagonal BEKK. (search for similar items in EconPapers)
JEL-codes: C32 C58 G12 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets and nep-fmk
Date: 2018-09
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://eprints.ucm.es/49333/1/1826.pdf (application/pdf)

Related works:
Journal Article: Connecting VIX and Stock Index ETF with VAR and Diagonal BEKK (2018) Downloads
Working Paper: Connecting VIX and Stock Index ETF with VAR and Diagonal BEKK (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucm:doicae:1826

Ordering information: This working paper can be ordered from
Facultad de Ciencias Económicas y Empresariales. Pabellón prefabricado, 1ª Planta, ala norte. Campus de Somosaguas, 28223 - POZUELO DE ALARCÓN (MADRID)
https://www.ucm.es/f ... -de-trabajo-del-icae

Access Statistics for this paper

More papers in Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico Contact information at EDIRC.
Bibliographic data for series maintained by Águeda González Abad ().

 
Page updated 2019-10-08
Handle: RePEc:ucm:doicae:1826