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Volatility effect of ETFs on the constituents of the underlying Taiwan 50 Index

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  • Ching-Chung Lin
  • Min-Hsien Chiang

Abstract

Owing to the growing importance of the Taiwan Top 50 Tracker Fund (TTT), the first and the only Taiwanese Exchange Traded Fund (ETF), this study investigates the change in the volatility of the component stocks of the Taiwan 50 Index after the introduction of TTT. Using the volatility measure proposed by Andersen et al. (2001) and the unconditional variance of a GARCH model to measure the volatilities of the constituents of the Taiwan 50 Index, the empirical results of this study demonstrate that the volatility of the component stocks increased following the establishment of TTT. The patterns of volatility change do not differ statistically among different size categories. However, the volatilities of the electronic and the financial sector TTT constituent companies increased significantly after the introduction of TTT, while the volatility of companies in the mixed sector reduced.

Suggested Citation

  • Ching-Chung Lin & Min-Hsien Chiang, 2005. "Volatility effect of ETFs on the constituents of the underlying Taiwan 50 Index," Applied Financial Economics, Taylor & Francis Journals, vol. 15(18), pages 1315-1322.
    • Handle: RePEc:taf:apfiec:v:15:y:2005:i:18:p:1315-1322
    DOI: 10.1080/09603100500389630
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    Cited by:

    1. J. -H. Chen & C. -Y. Huang, 2010. "An analysis of the spillover effects of exchange-traded funds," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1155-1168.
    2. Marszk, Adam & Lechman, Ewa, 2021. "Reshaping financial systems: The role of ICT in the diffusion of financial innovations – Recent evidence from European countries," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    3. Justice Matarutse, 2014. "Volatility characteristics of stocks underlying Exchange Traded Funds in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 6(10), pages 829-839.
    4. Farouk, Faizal & Masih, Mansur, 2016. "Are there profit (returns) in Shariah-compliant exchange traded funds? The multiscale propensity," Research in International Business and Finance, Elsevier, vol. 38(C), pages 360-375.
    5. Luca J. Liebi, 2020. "The effect of ETFs on financial markets: a literature review," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(2), pages 165-178, June.
    6. 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.
    7. Prabhdeep Kaur & Jaspal Singh, 2021. "Impact of ETF Listing on the Returns Generated by Underlying Stocks: Indian Evidence," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 46(3), pages 263-288, August.
    8. Xuan Vinh Vo & Kevin Daly, 2008. "Volatility amongst firms in the Dow Jones Eurostoxx50 Index," Applied Financial Economics, Taylor & Francis Journals, vol. 18(7), pages 569-582.
    9. Jo-Hui Chen, 2011. "The spillover and leverage effects of ethical exchange traded fund," Applied Economics Letters, Taylor & Francis Journals, vol. 18(10), pages 983-987.

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