The Analysis of the Interaction of ETF and related Financial Assets in the Bull and Bear Markets—Polaris Taiwan Top 50 Tracker Fund
Date Issued
2011
Date
2011
Author(s)
Lin, Wei-Chih
Abstract
This paper investigates the interaction of ETF (Exchange Traded Funds) and related financial assets in the Bull and Bear markets. In this study, empirical data included Polaris Taiwan Top 50 Tracker Fund, Taiwan stock index, Taiwan stock index futures and Taiwan 50 index from January 2, 2006 to January 21, 2009. The model is derived from the quantitative method such as Unit Root Test, Chow Test, Cointegration Test, Granger causality Test, Vector Error Correction Model, Impulse function and Variance decomposition Model. Following conclusions can be drawn from this empirical result:
In the aspect of the long term equilibrium, there exists the long term equilibrium relationship between ETF and related financial assets. This result corresponds to the One of Price Theory. However, derived financial assets could be more efficient than the spot markets. Previous hypotheses could explain this result.
The results from Vector Error Correction Model and Granger causality Test show that:(1)ETF exists no significant lead relationship between other financial assets in the Bull market.(2)However, ETF leads other assets in the Bear markets. The features of Power value stock might explain the phenomenon.
In the Variance decomposition Model, Taiwan stock index futures has more powerful to explain Taiwan stock index than ETF in Bull market. However, ETF could explain the majority of Taiwan index.
Subjects
ETF
lead—lag
Bull market
Bear market
Type
thesis
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