Are global Exchange Traded Fund pretentious on exchange rate fluctuation? A study using GARCH model

  • 183 Views
  • 14 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

Investors invest in a foreign market to reap the benefits of currency differences. The change in the value of underlying assets affects these hedged funds and, at the same time, restricts investors from higher return possible in unhedged funds. This study aims to examine the performance of most actively traded shares in Exchange Traded Fund and any influence, along with tracking the information from the index. This study also analyzes the currency fluctuation and its impact on returns and volatility of ETF and index. The equity ETF, which tracks NASDAQ (NDX 100), is chosen for the study, and the data analysis is carried out using statistical methods such as correlation, regression, and GARCH model. The study utilizes the currency rate data from 2013 to 2018 of USD, GBP, and INR and examines its effect on the NDX (NASDAQ). The study emphasizes whether the ETF as a basket of securities is insensitive to currency rate fluctuations. It is found that the response of ETF to the currency movements is likely due to its underlying index. The study concludes that Motilal Oswal shares in NASDAQ 100 ETF are highly sensitive to the NDX 100 movements; thus, there is no direct impact between ETF and index performance through exchange rate fluctuation.

view full abstract hide full abstract
    • Figure 1. Annual return (%)
    • Figure 2. Tracking error
    • Figure 3. A matrix of plots showing the correlations between variables ETF, NDX
    • Figure 4. A matrix of plots showing the correlations between variables ETF, US
    • Figure 5. A matrix of plots showing the correlations between variables ETF, GBPINR
    • Figure 6. Time series plot of ETF, GBPINR, GBPUSD, NDX, USD
    • Figure 7. Time series plot of VETF, VGBPINR, VGBPUSD, VNDX, VUSD
    • Figure 8. Regression line of NDX and ETF
    • Figure 9. Regression line of USD and ETF
    • Figure 10. Regression line of GBPRM and NDX
    • Figure 11. Regression line of GBPDN and NDX
    • Table 1. Test results of augmented Dickey-Fuller test and Phillips-Perron test
    • Table 2. Test results of GARCH (1,1)
    • Conceptualization
      Geetha E, Iqbal Thonse Hawaldar
    • Methodology
      Geetha E, Rajesha Thekkekutt Mathukutti
    • Project administration
      Geetha E, Iqbal Thonse Hawaldar
    • Validation
      Geetha E, Iqbal Thonse Hawaldar
    • Writing – review & editing
      Geetha E, Iqbal Thonse Hawaldar
    • Data curation
      Vidya Bai G, Suhan Mendon
    • Investigation
      Vidya Bai G, Suhan Mendon
    • Supervision
      Vidya Bai G, Suhan Mendon
    • Visualization
      Vidya Bai G, Rajesha Thekkekutt Mathukutti
    • Formal Analysis
      Suhan Mendon, Rajesha Thekkekutt Mathukutti
    • Writing – original draft
      Suhan Mendon, Rajesha Thekkekutt Mathukutti