Positive Dependence and Volatility Asymmetry Properties of the Largest Exchange-Traded Notes (ETNs)

This research provides evidence of predictability and asymmetry in the returns and volatility of the two largest exchange-traded notes (ETNs), namely, JPMorgan Alerian MLP Index ETN (ticker: AMJ) and iPath DJ-UBS Commodity ETN (ticker: DJP). This study found that AMJ ETN has an intermediate memory based on the autoregressive fractionally integrated moving average (ARFIMA) model and the combined ARFIMAfractionally integrated general autoregressive conditional heteroskedasticity (ARFIMAFIGARCH) models. Long-memory properties also existed in the volatility structures of both the AMJ and DJP ETNs according to the ARFIMA-FIGARCH models making them predictable in the long-run, and violates Fama’s (1970) weak-form efficiency hypothesis. The combined ARFIMA-fractionally integrated asymmetric power autoregressive conditional heteroskedasticity (ARFIMA-FIAPARCH) models did not confirm the initial ? findings due to insignificant results. However, the gamma ( ) parameter of the ARFIMA-FIAPARCH models showed the presence of volatility asymmetry in the AMJ ETN, which means that negative shocks have relatively more impact than positive shocks on its volatility.