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The performance of South African exchange traded funds under changing market conditions

Author

Listed:
  • Damien Kunjal

    (University of KwaZulu-Natal)

  • Faeezah Peerbhai

    (University of KwaZulu-Natal)

  • Paul-Francois Muzindutsi

    (University of KwaZulu-Natal)

Abstract

Despite the soaring popularity of exchange-traded funds (ETFs), ETFs may find it difficult to replicate the returns of their underlying index under changing market conditions. The objective of this study is to examine the performance of South African ETFs under bullish and bearish market conditions. This paper employs a single index Markov Switching model to examine the tracking efficiency of a sample of ETFs tracking the FTSE/JSE Top 40 (J200) index from 27 November 2000 until 31 July 2019. The findings suggest that, on average, ETFs are more responsive to fluctuations in their underlying index during bullish market conditions and they display a higher tracking error during bearish market conditions. Thus, our findings support the notion that ETF performance differs across market regimes, implying that ETF fund managers should disclose their betas across different market conditions so that ETF investors and traders can adequately evaluate their risk exposures in each market condition.

Suggested Citation

  • Damien Kunjal & Faeezah Peerbhai & Paul-Francois Muzindutsi, 2021. "The performance of South African exchange traded funds under changing market conditions," Journal of Asset Management, Palgrave Macmillan, vol. 22(5), pages 350-359, September.
    • Handle: RePEc:pal:assmgt:v:22:y:2021:i:5:d:10.1057_s41260-021-00227-z
    DOI: 10.1057/s41260-021-00227-z
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    Cited by:

    1. Damien Kunjal & Faeezah Peerbhai & Paul-Francois Muzindutsi, 2022. "Political, economic, and financial country risks and the volatility of the South African Exchange Traded Fund market: A GARCH-MIDAS approach," Risk Management, Palgrave Macmillan, vol. 24(3), pages 236-258, September.
    2. Priya Malhotra & Pankaj Sinha, 2023. "Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance," Metamorphosis: A Journal of Management Research, , vol. 22(1), pages 38-54, June.
    3. Damien Kunjal, 2022. "Evaluating the Liquidity Response of South African Exchange-Traded Funds to Country Risk Effects," Economies, MDPI, vol. 10(6), pages 1-20, June.

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    More about this item

    Keywords

    Benchmark index; Exchange-traded funds; Market regimes; Tracking error;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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