Do Leveraged ETFs Increase Volatility

Abstract

The 2008 financial crisis has produced volatility levels not seen since the 1987 stock market crash more than 20 years ago. During that time, the culprit was thought to be index futures and program trading. This time, leveraged ETFs and their rebalancing trades have been singled out by some to explain both the spike in volatility and the appearance of large price swings at the end of the trading day. This study examines the merit of these accusations and whether the increase in volatility and end of the day price momentum is indeed linked to leveraged ETFs and their rebalancing trades. For the S&P 500, the relationship appears to be a spurious coincidence. [ABSTRACT FROM AUTHOR] Copyright of Technology & Investment is the property of Scientific Research Publishing and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)