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Do Leveraged/Inverse Etfs Wag The Underlying Market? : Evidence From The Korean Stock Market

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  • LEE, KYUSEOK
  • KIM, SOO-HYUN

Abstract

This paper addresses the question of whether leveraged and inverse exchange-traded funds (ETFs) affect the underlying market. The Korean markets provide a unique context to address the question in that (i) the ETFs contain only stocks and futures, and (ii) the futures markets close 15 minutes later than the stock markets. Although the Hasbrouck information shares do not indicate any dominant price discovery effect between the leveraged/inverse ETFs and the underlying stock market based on daily close-to-close returns, we find evidence that ETF managersʼ rebalancing activities have a significant impact on the daily close-to-open returns of the underlying stock market.

Suggested Citation

  • Lee, Kyuseok & Kim, Soo-Hyun, 2018. "Do Leveraged/Inverse Etfs Wag The Underlying Market? : Evidence From The Korean Stock Market," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 59(2), pages 83-94, December.
    • Handle: RePEc:hit:hitjec:v:59:y:2018:i:2:p:83-94
    DOI: 10.15057/29713
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    References listed on IDEAS

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    1. Chang, Rosita P. & Rhee, S. Ghon & Stone, Gregory R. & Tang, Ning, 2008. "How does the call market method affect price efficiency? Evidence from the Singapore Stock Market," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2205-2219, October.
    2. Pauline Shum & Walid Hejazi & Edgar Haryanto & Arthur Rodier, 2016. "Intraday Share Price Volatility and Leveraged ETF Rebalancing," Review of Finance, European Finance Association, vol. 20(6), pages 2379-2409.
    3. Kurov, Alexander & Lasser, Dennis J., 2004. "Price Dynamics in the Regular and E-Mini Futures Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(2), pages 365-384, June.
    4. Charupat, Narat & Miu, Peter, 2011. "The pricing and performance of leveraged exchange-traded funds," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 966-977, April.
    5. Jarrow, Robert A., 2010. "Understanding the risk of leveraged ETFs," Finance Research Letters, Elsevier, vol. 7(3), pages 135-139, September.
    6. Hasbrouck, Joel, 1995. "One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-1199, September.
    7. Loviscek, Anthony & Tang, Hongfei & Xu, Xiaoqing Eleanor, 2014. "Do leveraged exchange-traded products deliver their stated multiples?," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 29-47.
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    Cited by:

    1. Yutaka Kurihara & Shinichiro Maeda & Akio Fukushima, 2021. "Have the Purchases of ETF Raised Stock Prices? Recent Japanese Case," Bulletin of Applied Economics, Risk Market Journals, vol. 8(1), pages 109-119.

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    More about this item

    Keywords

    ETF; price discovery; information share; market impact;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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