China's Exchange Traded Fund: Is There a Trading Place Bias?

Review of Pacific Basin Financial Markets and Policies, Vol. 11, Issue 1, pp. 61-74, 2008

Posted: 14 Oct 2009

See all articles by Louis T. W. Cheng

Louis T. W. Cheng

The Hang Seng University of Hong Kong - Department of Economics and Finance

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration

Yiuman Tse

University of Texas at San Antonio - College of Business

Date Written: March 2008

Abstract

We use Granger causality tests and an EGARCH model to analyze the pricing relations in the US between two exchange traded funds, the iShares FTSE/Xinhua China 25 Index (FXI) and the S&P 500 Index Fund (IVV). Daily data indicates that Hong Kong home market basically drives the FXI returns in the US. In case of intraday analysis, the US-based IVV appears to dominate the pricing of the FXI. The evidence supports the speculative pricing hypothesis that the location of trading has stronger effects than the influence of domestic effects summarized by FXI's lagged returns.

Keywords: Exchange traded funds, China market, Granger causality tests, EGARCH model

JEL Classification: F21, F36, G15

Suggested Citation

Cheng, Louis T. W. and Fung, Hung-Gay and Tse, Yiuman, China's Exchange Traded Fund: Is There a Trading Place Bias? (March 2008). Review of Pacific Basin Financial Markets and Policies, Vol. 11, Issue 1, pp. 61-74, 2008 , Available at SSRN: https://ssrn.com/abstract=1488017

Louis T. W. Cheng (Contact Author)

The Hang Seng University of Hong Kong - Department of Economics and Finance ( email )

Hang Shin Link
Siu Lek Yuen
Shatin
United States

Hung-Gay Fung

University of Missouri at Saint Louis - College of Business Administration ( email )

One University Blvd.
487 SSB
St. Louis, MO 63121
United States
314-516-6374 (Phone)

Yiuman Tse

University of Texas at San Antonio - College of Business ( email )

Department of Finance
San Antonio, TX 78249
United States
210-458-5314 (Phone)

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