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Have leveraged and traditional ETFs impacted the volatility of real estate stock prices?

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  • Richard J. Curcio
  • Randy I. Anderson
  • Hany Guirguis
  • Vaneesha Boney
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    Abstract

    Exchange Traded Funds (ETFs), including the innovative leveraged (long and inverse) types, and the ever more creative traditional versions, are accelerating in popularity as preferred investment and trading vehicles. Real estate, a major investment sector, has been made more accessible through these tools. This study investigates if the introduction of real estate ETFs is impacting the volatility of their underlying real estate stocks. Tests conclude that the introduction of leveraged (long and inverse) and traditional real estate and real estate related ETFs, linked to the Dow Jones US Real Estate and Financial Indices and the leveraged (long and inverse) ETFs, benchmarked to the Russell 1000 Financial Services Index, significantly increased the volatility in their component real estate stock prices. The leveraged ETFs tied to the Dow Jones US Real Estate and Financial Indices caused the highest volatility, approximately tripling the volatility in the underlying real estate securities. Traditional ETFs were second, causing slightly more than a 70% increase in volatility, while the leveraged ETFs linked to the Russell 1000 Financial Services Index, having induced a 50% increase in volatility, were third. The increased volatility could not be attributed to any other external event.

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    File URL: http://hdl.handle.net/10.1080/09603107.2011.624080
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 22 (2012)
    Issue (Month): 9 (May)
    Pages: 709-722

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    Handle: RePEc:taf:apfiec:v:22:y:2012:i:9:p:709-722

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    Web page: http://www.tandfonline.com/RAFE20

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