The Impact of Leveraged and Inverse ETFs on Underlying Real Estate Returns
Real Estate Economics, Forthcoming
Posted: 31 Dec 2013
Date Written: December 13, 2013
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.
Keywords: Leverage and Inverse exchange traded funds (ETFs), REITs, Financial Crisis, rebalancing demand
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