ABSTRACT

High-yield bonds are characterized by significant credit risk, are volatile and suffer more from macroeconomic cycles than investment-grade bonds. The research task is to identify the features of the correlation dependencies of ETF series on bond market segments. The emphasis is on identifying the characteristics of the dynamics of the volatility of high-yield bond ETFs. We consider a number of different ETFs in the American market from 2013 to 2019. We build GARCH models of ETF return rate volatility. We conclude that high-yield bond ETFs have a higher volatility of model errors. We reveal that there is no significant correlation in the dynamics of volatility of ETFs, and their providers in the US market correctly diversify their portfolios. The correlation between the dynamics of ETFs and US Treasury bills is false and is associated exclusively with trends in financial markets. This allows an investor to build diversified portfolios of various ETFs, including high-risk ones.

We reveal trends concerning emerging market bond ETFs. The number of emerging bond ETFs is rapidly growing, but the inflow to these funds is highly volatile and does not demonstrate a clear growth trend. We analyze reasons for the increasing popularity of bond ETFs and reveal promising investment areas. We find that macroeconomic and political factors play a significant role defining the inflows in equity and bond ETFs.