Title: Spillover effects between US ETFs and emerging stock markets

Authors: Gerasimos G. Rompotis

Addresses: National and Kapodistrian University of Athens, 25 Ypsilantou Str, Peristeri, Athens, Greece

Abstract: The current paper focuses on return and volatility spillovers between the US ETF market and emerging stock markets using a sample of 40 US-listed iShares, which track several emerging stock markets indices from the Americas, Europe, Asia and South Africa. Advanced econometric and correlation analysis techniques are employed in our investigation. More specifically, a comprehensive correlation analysis, which includes the Pearson's simple correlation coefficient and the conditional constant correlation and dynamic conditional correlation coefficients, is performed to answer whether a significant comovement pattern exists between the two markets. Going further, three alternative models, namely an ARMA model, an ARMA-GARCH model and an ARMA-EGARCH model, are used to assess the existence of material spillover effects on returns. Finally, five models are used to accentuate any significant spillovers on volatilities between US emerging markets ETFs and their benchmarks. These models are the augmented GARCH model, the ARMA-GARCH model, the ARMA-EGARCH model, the scalar-BEKK model, and the ARMA-scalar-BEKK model. The empirical findings of correlation analysis reveal a high degree of comovement between the US ETF market and the underlying emerging stock markets. Furthermore, the results on return spillovers demonstrate that significant bilateral such effects exist between ETFs and benchmarks. This is also the case for volatilities.

Keywords: exchange traded funds; ETFs; emerging markets; return; volatility; spillover effects.

DOI: 10.1504/GBER.2018.091711

Global Business and Economics Review, 2018 Vol.20 No.3, pp.327 - 372

Received: 14 Jan 2016
Accepted: 09 Dec 2016
Published online: 14 May 2018 *

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