Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Workplace-Name:
 Department of Applied Economics Department of Finance National Chung Hsing University, Taiwan.
Author-Name: Tai-Lin Hsieh
Author-Workplace-Name: Department of Applied Economics, National Chung Hsing University 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 with VAR and Diagonal BEKK
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.
Classification-JEL: C32, C58, G12, G15.
Keywords: Stock market indexes; Exchange Traded Funds; Volatility Index (VIX); Global Financial Crisis; Vector Autoregressions; Moving Average processes; 
	Conditional Heteroskedasticity; Diagonal BEKK.
Length: 64 pages 
Creation-Date: 2018-09
Number: 2018-26
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1826.txt
File-URL: https://eprints.ucm.es/id/eprint/49333/1/1826.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1826