Yadav, Miklesh Prasad ORCID: 0000-0001-7851-5803, Bhatia, Shikha ORCID: 0000-0001-9969-4150, Singh, Nidhi ORCID: 0000-0003-3181-4077 and Islam, Md Tarikul ORCID: 0000-0002-2165-1203 (2022) Financial and energy exchange traded funds futures: an evidence of spillover and portfolio hedging. Annals of Operations Research. ISSN 0254-5330 (Print), 1572-9338 (Online) (doi:https://doi.org/10.1007/s10479-022-04538-1)

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Abstract

This paper examines spillover from financial exchange-traded funds (ETF) futures to energy ETF futures using adjusted daily data extending from April 2, 2009, to November 23, 2020. We also explore the portfolio hedging-based conditional variance and co-variance derived from dynamic conditional correlation. The proxies for the financial ETF futures are financial select sector SPDR fund (XLF) and generic 1st S&P 500 index futures (SP1) while generic 1st crude oil WTI futures (CL1), generic 1st natural gas futures (NG1), and energy select SPDR fund (XLE) are proxies of energy ETF futures. The results obtained from Granger causality indicate that there is unidirectional causality from RXLF to RSP1 while bidirectional causality between RXLF and RCL1 at a 5% significance level. Further, dynamic conditional correlation indicates the spillover effect from RXLF to RCL1, RXLF to RXLE, RSP1 to RCL1, and RSP1 to RXLE both in the short-run and long run. The spillover from RXLF to RNG1 is witnessed only in the short run while the spillover from RSP1 to RNG1 is present in long run. The present study corroborates with the studies of Chang et al. (Int J Finan Stud 6(2): 1–24, 2018) and Lau et al. (Int Rev Finan Anal 52: 316-332, 2017). We notice that the average optimal hedge ratio of the RXLF/RNG1 pair is the most expensive while the cheapest hedging strategy is of RSP1/RCL1 pair.

Item Type:	Article
Uncontrolled Keywords:	Financial ETF; Energy ETF; spillover; portfolio hedging; dynamic connectedness
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce > HF5601 Accounting H Social Sciences > HG Finance
Faculty / School / Research Centre / Research Group:	Faculty of Business Faculty of Business > Department of Accounting & Finance
Last Modified:	11 May 2023 07:49
URI:	http://gala.gre.ac.uk/id/eprint/42031

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