The Effects of the Chinese Stock Crisis on the U.S.Exchange-Traded Funds Market

Abstract

This article examines how the recent crisis in the Chinese stock market affected U.S.-listed ETFs, which track broad market or sector indexes covering the Chinese market as well as U.S.-listed ETFs covering broad indexes of the U.S. market. The period under examination spans from mid-June 2014, i.e., one calendar year before the burst of the crisis on June 12, 2015, to the end of October 2015. Our analysis shows that the performance of both ETF groups examined—the China-oriented and the U.S.-oriented funds—was severely affected over the period of the crisis peak, spanning from June 12, 2015, to August 25, 2015. Volatility in the ETF market surged dramatically over the same period. Our analysis reveals that the linkages between the Chinese stock market and the U.S. ETF market became stronger after the burst of the crisis. However, a significant volatility transmission from the Chinese stock market to the U.S. ETF market is found both before and after the burst of the crisis.