Persistence of Volatility Spillovers in Indian Equity Exchange Traded Funds
Keywords:
exchange traded funds, volatility spillover, stock market indices, returnsAbstract
This study adopted the GARCH(1,1) model to estimate the volatility spillover of equity Exchange Traded Fund (ETF) daily returns with their underlying benchmark daily returns.Augmented Dicky Filler (ADF) Unit root has employed to examine the stationarity of the time series data. A rapid growth occurred in the ETFs in India, ETFs have become an important factor in volatility generating process of their underlying benchmark indices, as it is found in Indian equity ETFs. The study has actually examined that how the volatility transmission occurs in between ETF returns and their underlying benchmark.GARCH reveals that huge volatility is always resulted from huge volatility and low volatility if from low volatility periods. Volatility spillover for the Equity ETFs and Underlying Benchmark indices were found to be significant for all the ETFs traded in Indian stock market. Internal shocks happening in the market will automatically generate an impact in the ETF portfolio.The findings provide interdependence of ETFs and their underlying portfolio. The stock market indices including Nifty 50,S&P BSE Sensex,Nifty Bank, Nifty Infra etc showed high volatility during some time horizons, which automatically generated a volatility transition to the ETF portfolio also.
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