Asymmetric responses of the sectoral ETFs to market extremes: evidence from the left and right tails

Purpose This study aims to investigate the asymmetric responses of the sectoral exchange-traded funds in the USA to extreme market conditions by estimating upside and downside betas across the left and right tails of the market return distribution. The authors identify which sectors exhibit defensive or aggressive characteristics during market downturns and upturns. Design/methodology/approach Using daily return data from January 1, 1999, to October 17, 2023, the study applies threshold regression models to estimate sector-specific betas under three tail-risk scenarios: 5%, 10% and an optimally determined threshold. The analysis is conducted across the full sample and sub-periods (pre- and post-global financial crisis) to assess robustness and structural shifts. Findings The results reveal that consumer staples, health care and utilities consistently exhibit downside betas below unity, confirming their defensive nature. In contrast, financials and technology demonstrate higher upside betas, indicating strong performance during market rallies. Particularly, technology is the only sector with an upside beta consistently exceeding its downside beta across all thresholds and periods. Originality/value To the best of the authors’ knowledge, this study is the first to assess sectoral ETF behavior under extreme market conditions using multiple tail thresholds and long-term high-frequency data. By distinguishing between upside and downside risks, it offers insights for passive and institutional investors seeking to optimize portfolio performance during volatile market phases.