The Performance of Dividend ETFs: The Study of the Spillover and Leverage Effects

Jo-Hui Chen,Dang Trung Kien

doi:10.4236/tel.2019.93035

Abstract

The objective of this study is to identify the existence of spillover and leverage effects from returns and return volatilities of high yield and low yield dividend ETFs on tracing market stock indices, and vice versa. The Generalized Autoregressive Conditional Heteroscedasticity-in-Mean-Autoregressive Moving Average (GARCH-M-ARMA) and the Exponentially Generalized Autoregressive Conditional Heteroscedasticity-in Mean Autoregressive Moving Average (EGARCH-M-ARMA) are utilized by authors. The six ETFs, recognized in Top 100 ETFs of etfdb.com database, with their underlying indices are selected to represent the high and low dividend yield ETFs group. The findings show that the spillover effect in return is more happening in a group of low yield dividend ETFs, while the spillover effect on return volatilities is more dominant in a group of high yield dividend ETFs. In the case of the leverage effect, it exists in all ETFs and the stock Index, in which the negative asymmetric volatility effect more happens when comparing the positive asymmetric volatility effect.

Highlights

The findings show that the spillover effect in return is more happening in a group of low yield dividend Exchange-Traded Funds (ETFs), while the spillover effect on return volatilities is more dominant in a group of high yield dividend ETFs
The findings show that the spillover effect is more happening in groups of low yield dividend ETFs with a unilateral positive effect (SPLG/NYA, PGHY/NYA, SHYG/NYA), while most of the result in high yield dividend ETFs are insignificant
This study investigated the spillover and leverage effects of dividend ETFs and stock index return as well as return volatilities to fulfill the gap

Summary

Introduction

The dividend-payout policy is measured as one of the critical financial decisions, and dividend payment may influence the interests of shareholders and the future growth of a firm. Experimental studies of Gordon [5] and Fisher [6] bring results that support this argument Their findings show that the dividend has a greater impact on the share price, compared to the effect of retained earnings. There is an interesting question if the factors lead to high yield stocks They are the same as for the high yield ETFs. The findings of this study will be a useful application because many shareholders evaluate their target investments based on profit earning. The findings of this study will be a useful application because many shareholders evaluate their target investments based on profit earning There are those investors who prefer the dividend payout, to stabilize portfolio and minimize risk, and hedge against inflation or even accumulate a revenue stream.

Literature Review

Data and Methodology

Empirical Findings

Conclusions