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Water exchange traded funds: A study on idiosyncratic risk using Markov switching analysis

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  • Gurudeo Anand Tularam
  • Rajibur Reza

Abstract

We investigate the relationship between idiosyncratic risk and return among four water exchange traded funds—PowerShares Water Resources Portfolio, Power Shares Global Water, First Trust ISE Water Index Fund, and Guggenheim S&P Global Water Index ETF using the Markov switching model for the period 2007–2015. The generated transition probabilities in this paper show that there is a high and low probability of switching between Regimes 1 and 3, respectively. Moreover, we find that the idiosyncratic risk for most of the exchange traded funds move from low volatility (Regime 2) to very low volatility (Regime 1 and 3). Our study also identify that the beta coefficients are positive and entire values are less than 1. Thus, it seems that water investment has a lower systematic risk and a positive effect on the water exchange traded index funds returns during different regimes.

Suggested Citation

  • Gurudeo Anand Tularam & Rajibur Reza, 2016. "Water exchange traded funds: A study on idiosyncratic risk using Markov switching analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1139437-113, December.
    • Handle: RePEc:taf:oaefxx:v:4:y:2016:i:1:p:1139437
    DOI: 10.1080/23322039.2016.1139437
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    Cited by:

    1. Rajibur Reza & Gurudeo Anand Tularam & Xiyang Li & Bin Li, 2022. "Investments in the Asian water sector: an analysis based on the DCC-GARCH model," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-9, December.
    2. Tiwari, Aviral Kumar & Adewuyi, Adeolu O. & Adeleke, Musefiu Adebowale & Abakah, Emmanuel Joel Aikins, 2023. "A time-varying Granger causality analysis between water stock and green stocks using novel approaches," Energy Economics, Elsevier, vol. 126(C).
    3. Reza, Rajibur & Tularam, Gurudeo Anand & Li, Bin, 2021. "A review of global research on private investment in the water sector," Utilities Policy, Elsevier, vol. 72(C).

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