Effects of commodity exchange-traded note introductions: Adjustment for seasonality

This study investigates the impacts of the introductions of commodity exchange-traded notes on the corresponding underlying commodity futures markets around their issuance announcement and listing dates. Focusing on the Korean market, a leading and influential emerging market, we adopt an event study approach to analyze changes in futures returns and volatilities. Considering the potential cyclicality and seasonality of commodity futures dynamics, we use the Hodrick-Prescott filter to decompose the return processes into four separate components, that is, the trend, seasonal, cyclical, and irrational components, and we analyze only the irrational component as the abnormal excess return. We observe significant but temporary abnormal returns before issuance announcements, implying a hedging effect; significant negative abnormal returns after announcements of inverse products, indicating a short-sale constraint removal effect; and significant positive returns on the announcement dates of leveraged product portfolios, indicating a signaling effect. We also find that the volatility of the seasonal component significantly decreases after the introductions of leveraged products.