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

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. 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 is more happen when comparing the positive asymmetric volatility effect. This study
provided a point of view on the relationship between return and risk management by investment
decision based on the dividend yield of Exchange-Traded Funds (ETFs). However, there remain
some limitations, such as the identification of high and low dividend ETFs are still quite simple. Future
researchers can improve it by applying some critical approach to ETF’s yield calculation and
definition.