Water exchange traded funds: A study on idiosyncratic risk using Markov switching analysis

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Author(s)
Tularam, Gurudeo Anand
Reza, Rajibur
Year published
2016
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We investigate the relationship between idiosyncratic risk and return among four water exchange traded funds—PowerShares Water Resources Portfolio, Power Shares Global Water, First Trust ISE Water Index Fund, and Guggenheim S&P Global Water Index ETF using the Markov switching model for the period 2007–2015. The generated transition probabilities in this paper show that there is a high and low probability of switching between Regimes 1 and 3, respectively. Moreover, we find that the idiosyncratic risk for most of the exchange traded funds move from low volatility (Regime 2) to very low volatility (Regime 1 and 3). Our study ...
View more >We investigate the relationship between idiosyncratic risk and return among four water exchange traded funds—PowerShares Water Resources Portfolio, Power Shares Global Water, First Trust ISE Water Index Fund, and Guggenheim S&P Global Water Index ETF using the Markov switching model for the period 2007–2015. The generated transition probabilities in this paper show that there is a high and low probability of switching between Regimes 1 and 3, respectively. Moreover, we find that the idiosyncratic risk for most of the exchange traded funds move from low volatility (Regime 2) to very low volatility (Regime 1 and 3). Our study also identify that the beta coefficients are positive and entire values are less than 1. Thus, it seems that water investment has a lower systematic risk and a positive effect on the water exchange traded index funds returns during different regimes.
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View more >We investigate the relationship between idiosyncratic risk and return among four water exchange traded funds—PowerShares Water Resources Portfolio, Power Shares Global Water, First Trust ISE Water Index Fund, and Guggenheim S&P Global Water Index ETF using the Markov switching model for the period 2007–2015. The generated transition probabilities in this paper show that there is a high and low probability of switching between Regimes 1 and 3, respectively. Moreover, we find that the idiosyncratic risk for most of the exchange traded funds move from low volatility (Regime 2) to very low volatility (Regime 1 and 3). Our study also identify that the beta coefficients are positive and entire values are less than 1. Thus, it seems that water investment has a lower systematic risk and a positive effect on the water exchange traded index funds returns during different regimes.
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Journal Title
Cogent Economics & Finance
Volume
4
Copyright Statement
© 2016 The Author(s). This open access article is distributed under a Creative Commons Attribution
(CC-BY) 4.0 license.
Subject
Applied Statistics