Abstract
Investors invest in a foreign market to reap the benefits of currency differences. The change in the value of underlying assets affects these hedged funds and, at the same time, restricts investors from higher return possible in unhedged funds. This study aims to examine the performance of most actively traded shares in Exchange Traded Fund and any influence, along with tracking the information from the index. This study also analyzes the currency fluctuation and its impact on returns and volatility of ETF and index. The equity ETF, which tracks NASDAQ (NDX 100), is chosen for the study, and the data analysis is carried out using statistical methods such as correlation, regression, and GARCH model. The study utilizes the currency rate data from 2013 to 2018 of USD, GBP, and INR and examines its effect on the NDX (NASDAQ). The study emphasizes whether the ETF as a basket of securities is insensitive to currency rate fluctuations. It is found that the response of ETF to the currency movements is likely due to its underlying index. The study concludes that Motilal Oswal shares in NASDAQ 100 ETF are highly sensitive to the NDX 100 movements; thus, there is no direct impact between ETF and index performance through exchange rate fluctuation.
Highlights
Exchange-traded funds are the basket of securities that are traded on an exchange like a single stock
Rubesam and Hwang (2019) stock returns as Indian investors mounting their found that long only-restriction is the primary expectation for risk premium on their investment factor to hinder the ability of smart beta exchange-traded funds (ETFs) to due to the added exposure to the exchange rate risk
The results indicate that MOSt shares NASDAQ 100 ETF are highly sensitive and volatile to the NDX 100 movements, and it is exposed to high risk as it tends to move in the same direction as its underlying asset moves
Summary
Exchange-traded funds are the basket of securities that are traded on an exchange like a single stock These are the combination of mutual funds and stocks, which replicate the stock, bonds, and commodities (market index) and offer diversified investment. The price signal of ETFs was most reliable in the case of certain fixed income securities as discussed by (Hill et al, 2015), where both equity and debt were highly volatile during the 2008–2009 financial crises It is considered comparatively safer and liquid, the liquidity criteria depend on its underlying securities. If it consists of highly liquid and tradable securities, the liquidity of ETF will be high and vice versa Other advantages it gives to the investors are transparency and cost-efficiency. Performance of ETFs considerably deviate from their net asset values in comparison with (Petajisto, 2017)
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