Investigation of the relationship between exchangetraded funds and benchmark index values: An application for the fragile five

Exchange-traded funds (ETFs), in addition to their recent growth, have secured an important position in financial markets due to their diversified portfolio structure and liquidity advantage. Financial institutions such as iShares offer investors iShares MSCI country ETFs, which aim to track MSCI country indices of assets traded in national stock markets. This study examines the effects of the macroeconomic indicators of the Fragile Five countries (Brazil, Indonesia, South Africa, India, and Türkiye), whose currencies experienced the sharpest depreciation against the U.S. dollar following the FED's 2013 announcement of a shift toward tighter monetary policies, on the price movements of these iShares MSCI country ETFs. The macroeconomic indicators include each country's stock market, exchange rate, interest rate, foreign direct investment inflows, credit default swap (CDS) premiums, and the VIX, which is considered a global risk indicator. The analysis employs quarterly data for the 2013–2024 period. Preliminary assessments conducted for each country in EViews 12 indicated that the series are stationary at different levels (I(0) or I(1)), making the ARDL method the most suitable econometric approach. The findings show that stock markets affect the price movements of all countries' ETFs; exchange rates affect those of all countries except India; interest rates are significant only for Brazil and Indonesia; and CDS premiums influence Brazil, Indonesia, and South Africa. Toda-Yamamoto causality analyses reveal varying causal relationships across countries. Therefore, the macroeconomic indicators examined in this study should be considered by iShares MSCI country ETF investors and fund managers in their decision-making processes.