A Theoretical Study on Leverage and Spillover Effects in Indian Equity ETFs

Abstract

Exchange-Traded Funds (ETFs) are innovative financial instrument as it is well-diversified like a mutual fund and listed in a stock exchange. Since the launch of the first ETF (Nifty BeES ETF) in 2001, the Indian ETF market has seen growth in the number of ETF schemes and Asset Under Management (AUM). This study is an overview of previous studies on spillover and leverage effects in the Indian Equity ETF market and related works to tap the research gap in these twin areas. The study found a need for a rigorous evaluation of the strength and nature of leverage effect among different Broader Index ETFs, Sectoral/thematic ETFs and World ETFs in India. The study also identified a research gap for the conduct of a study on the spillover of mean, volatility, risk between Equity ETFs and its benchmark index, and the speed of spillover effect would be immensely useful for investors and other stakeholders in the Indian Equity ETF market.