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The Impact of Leveraged and Inverse ETFs on Underlying Real Estate Returns
Author(s) -
Bai Qing,
Bond Shaun A.,
Hatch Brian
Publication year - 2014
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12061
Subject(s) - real estate , volatility (finance) , economics , econometrics , real estate investment trust , financial economics , momentum (technical analysis) , stock (firearms) , monetary economics , price discovery , futures contract , finance , geography , archaeology
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.