Volatility and Skewness Transmission in International Stock Markets - A Comparison Study on ETFs and Their Underlying Indices

Sammanfattning: This paper employs a VAR framework to investigate the differences be- tween index tracking ETFs in Germany, Japan, UK and US and their under- lying indices. Our paper investigates these differences in two different settings. First, we analyze the relationship between returns, volatilities and skewness in an intra-market setting, and compare the results for ETFs with those of their underlying indices. We then investigate the transmission of volatility and skewness between the four markets in our sample, again comparing the ETF results to the indices. The results from the intra- market analysis tell us that, although some differences exist, the ETFs do closely replicate the relationship exhibited by the underlying indices. However, in the transmission model we find significant differences be- tween the ETFs and the indices.