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The Impact of Leveraged and Inverse ETFs on Underlying Real Estate Returns

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  • Qing Bai
  • Shaun A. Bond
  • Brian Hatch

Abstract

type="main"> Leveraged and inverse ETFs (LETFs) were introduced in 2006. By 2008 there was concern that the requirement of LETFs to rebalance near the close might have a significant impact on the prices of the stocks in the underlying indexes. We examine the impact of trading activity induced by six real estate-related LETFs on the late-day price dynamics of 63 real estate sector stocks. Through a comparison of sample and control stocks and through a regression model of LETF rebalancing, we find that these LETFs significantly impact the prices of component stocks, increase their volatility and contribute to price momentum.

Suggested Citation

  • Qing Bai & Shaun A. Bond & Brian Hatch, 2015. "The Impact of Leveraged and Inverse ETFs on Underlying Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 37-66, March.
    • Handle: RePEc:bla:reesec:v:43:y:2015:i:1:p:37-66
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    File URL: http://hdl.handle.net/10.1111/1540-6229.12061
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    References listed on IDEAS

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    1. Bond, Shaun A. & Chang, Qingqing, 2012. "Liquidity dynamics across public and private markets," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1890-1910.
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    3. Richard J. Curcio & Randy I. Anderson & Hany Guirguis & Vaneesha Boney, 2012. "Have leveraged and traditional ETFs impacted the volatility of real estate stock prices?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(9), pages 709-722, May.
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    5. Jarrow, Robert A., 2010. "Understanding the risk of leveraged ETFs," Finance Research Letters, Elsevier, vol. 7(3), pages 135-139, September.
    6. Tugkan Tuzun, 2013. "Are leveraged and inverse ETFs the new portfolio insurers?," Finance and Economics Discussion Series 2013-48, Board of Governors of the Federal Reserve System (U.S.).
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    1. Brent W. Ambrose & Brad Case & Seow Eng Ong, 2015. "Introduction to the Special Issue," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 1-7, March.
    2. Marszk, Adam & Lechman, Ewa, 2021. "Reshaping financial systems: The role of ICT in the diffusion of financial innovations – Recent evidence from European countries," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    3. Ivanov, Ivan T. & Lenkey, Stephen L., 2018. "Do leveraged ETFs really amplify late-day returns and volatility?," Journal of Financial Markets, Elsevier, vol. 41(C), pages 36-56.
    4. Saæglam, Mehmet & Tuzun, Tugkan & Wermers, Russ, 2021. "Do ETFs increase liquidity?," CFR Working Papers 21-03, University of Cologne, Centre for Financial Research (CFR).
    5. DeVault, Luke & Turtle, H.J. & Wang, Kainan, 2021. "Blessing or curse? Institutional investment in leveraged ETFs," Journal of Banking & Finance, Elsevier, vol. 129(C).
    6. Fos, Vyacheslav & Chinco, Alex, 2019. "The Sound Of Many Funds Rebalancing," CEPR Discussion Papers 13561, C.E.P.R. Discussion Papers.
    7. Yuan, Ying & Huang, Yizhao & Chen, Haoran, 2021. "Monthly-rebalanced leveraged exchange-traded products: Performance and mandatory rebalancing needs," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    8. Zura Kakushadze & Juan Andrés Serur, 2018. "151 Trading Strategies," Springer Books, Springer, number 978-3-030-02792-6, September.

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