Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Email: changchialin@nchu.edu.tw
Author-Workplace-Name: Department of Applied Economics Department of Finance National Chung Hsing University Taichung, Taiwan.
Author-Name: Tai-Lin Hsieh
Author-Workplace-Name: Department of Applied Economics National Chung Hsing University Taichung, Taiwan.
Author-Name: Michael McAleer
Author-Workplace-Name: Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus 
	School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense 
	University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.
Title: Connecting VIX and Stock Index ETF
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. 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.
Classification-JEL: C32, C58, G12, G15.
Keywords: Stock market indexes, Exchange Traded Funds, Volatility Index (VIX), Vector autoregressions, Moving average processes, 
	Conditional heteroskedasticity, Diagonal BEKK.
Length: 42 pages 
Creation-Date: 2017-01
Number: 2017-08
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1708.txt
File-URL: https://eprints.ucm.es/id/eprint/41074/1/1708.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1708