Are US-Dollar-Hedged-ETF Investors Aggressive on Exchange Rates? A Panel VAR Approach

Authors

Corey A. Shank, The University of Texas Rio Grande Valley
Andre C. Vianna, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

9-2016

Abstract

Exchange traded funds (ETFs) are a multi-trillion dollar market that epitomizes financialization due to its recent growth. This study examines the behavior of U.S. listed currency hedged ETF investors towards changes in the underlying benchmark and foreign exchange rate from July 2011 to November 2015 using a panel VAR approach. We find that investors are able to anticipate changes in future exchange rates and invest in currency hedged ETFs prior to changes. Granger-causality tests confirm that these investors proactively trade before large real exchange rate movements. These results suggest that the use of financial instruments such as ETFs to hedge against exchange rate volatility may have itself become a source of volatility, which have implications for the further financialization of the ETF industry.

Comments

© 2016 Elsevier B.V. All rights reserved. Original published version available at https://doi.org/10.1016/j.ribaf.2016.05.002

Recommended Citation

Shank, Corey A., and Andre C. Vianna. “Are US-Dollar-Hedged-ETF Investors Aggressive on Exchange Rates? A Panel VAR Approach.” Research in International Business and Finance 38 (September 1, 2016): 430–38. https://doi.org/10.1016/j.ribaf.2016.05.002.

First Page

430

Last Page

438

Publication Title

Research in International Business and Finance

DOI

10.1016/j.ribaf.2016.05.002