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The Market Impact of Leveraged and Inverse ETFs: Evidence From S&P 500-Linked Products

Pang, Belisa
Format
Thesis/Dissertation; Online
Author
Pang, Belisa
Advisor
Gallmeyer, Michael
Abstract
Due to valuable qualities such as lower fees, greater transparency, expanded access, and greater tax efficiency, Exchange Traded Funds (ETFs) have experienced a rapid growth in the recent years. Particularly, the leveraged and inverse ETFs are designed to track multiples of an underlying index’s daily return through derivatives. This type of synthetic ETFs are often criticized for their potential to cause disproportionately large liquidity and volatility impact on the related markets. Prior literature showed that rebalancing demand resulted from the fixed leverage multiple is a key driver of this market impact. To support this argument, this thesis examines the leveraged and inverse ETFs linked to the S&P 500 index for empirical evidence. Started from the framework introduced by Cheng and Madhavan (2009) and Ivanov and Lenkey (2014), this thesis found that the rebalancing demand caused significant trading volume increase across multiple days during the last trading hour, and may have contributed to the volatility of the underlying unleveraged index ETFs.
Language
English
Published
University of Virginia, McIntire School of Commerce, BSC (Bachelor of Science in Commerce), 2017
Published Date
2017-06-17
Degree
BSC (Bachelor of Science in Commerce)
Collection
Libra ETD Repository
Creative Commons Attribution LicenseCreative Commons Attribution License
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