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|Title:||THREE ESSAYS ON EXCHANGE TRADED FUNDS AND EMERGING MARKETS|
|Keywords:||ETF, Emerging Market|
|Abstract:||In this thesis the author investigate the overreaction effect of Asian country exchange traded funds (ETFs) to US stock market returns, trading strategies of leveraged exchange traded funds (LETFs), and the regime switching behavior of emerging market sovereign credit default swaps. In the Asian country ETF paper the author studies the overreaction effect of US investors towards US market return when they formulate Asian country ETF prices. The Asian country ETFs are special because when the ETF shares are traded in the US the underlying Asian stock markets are closed resulting in stale Net Asset Values (NAVs) of ETFs. This feature of Asian country ETFs offers a unique setting to study the relation between security price and market sentiment. With a dynamic contrarian trading strategy the author records economically significant abnormal returns over the buy-and-hold benchmark suggesting that US investors’ sentiment does lead to abnormal returns in the Asian country ETF market. The author also studies the correspondence of the abnormal return with US market sentiment index and finds that they are positively correlated. Furthermore the author documents asymmetric responses of overreaction in bullish vs. bearish market sentiment. The results pose significant implications for both the academics and practitioners. iii The LETF trading strategy paper is a joint work with my supervisor Dr. Peter Miu and my supervisory committee member Dr. Narat Charupat. The authors investigate the market conditions that tip the balance between the market trending effect and the volatility drag in governing the performance of LETFs. The market conditions that promote a stronger former effect than the latter will result in a positive compounding effect, thus enhancing the profitability of a long LETF position at the expense of a short one. On the other hand, those market conditions that promote a dominating latter effect will result in a negative compounding effect, which benefits the short LETF position as opposed to the long position. To address our research questions, we conduct a series of simulation exercises by gauging the sensitivity of the LETF returns on key parameters of the return generating process of the underlying benchmark as represented by the GJR model. We first study the return distributions of a long strategy in a +3x LETF, a short strategy in a -3x LETF, and the pair strategy of a 50% short position in the +3x LETF together with a 50% short position in the -3x LETF, all on the same S&P 500 index. We examine different performance measures and study the risk-return trade-offs of LETF investment. We contribute to the literature by establishing the link between the performance of LETFs and characteristics of the return dynamics of the underlying benchmark through pinpointing the underlying drivers of the compounding effects to facilitate the decision-making process of LETF investors. In the sovereign Credit Default Swap (SCDS) paper the author investigates the dependency of sovereign CDS spread change on a sovereign’s country specific fundamental, local, regional and macro global factors. Using Markov regime switching model the author reveals that in a tranquil state a sovereign market’s fundamental factors mainly determine the direction of the SCDS spread movement, while in a turmoil state the global factors become dominant. Cross sectional analysis to examine the behavior of the same explanatory variable on countries of different macroeconomic characters and reveal that more “open” countries are more integrated with the regional economies with the contagion effect being more salient in the bad state, and smaller countries with less diversified economies would be more affected a global crisis because economic links are more important for such countries than larger countries. Furthermore, it shows that the influence of rating is more significant for “closed” than for “open” countries, and the market sentimental effect of flight-to-quality magnifies in the bad state that US equity market return has the strongest influence for small countries indicating stronger economic ties of smaller countries to larger countries with diverse economies in the bad state.|
|Appears in Collections:||Open Access Dissertations and Theses|
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|Ma_Zhe_201509_PhD.pdf||PhD Thesis, Finance, Student ID: 0801461||1.28 MB||Adobe PDF||View/Open|
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