Did Intraday Trading by Leveraged and Inverse Leveraged ETFs Create Excess Price Volatility? A Look at REITs and the Broad Market

Vaneesha Boney-Dutra, Hany Guirguis and Glenn Mueller

Journal of Real Estate Portfolio Management, 2013, vol. 19, issue 1, 1-16

Abstract: Executive Summary. Leveraged exchange traded funds (ETFs) and inverse leveraged ETFs offer investors a multiple of the daily return on a specific stock index. This study examines whether the daily rebalancing activity associated with leveraged and inverse leveraged ETFs impacted the price volatility of real estate investment trusts (REITs) and the Dow Jones Index. We find that the daily rebalancing increased the price volatility of their underlying REIT stocks 75% of the time and broad market securities 69% of the time between July 2007 and October 2010; it also decreased the price volatility 25% and 31% of the time respectively. These impacts were especially significant during periods of high overall market volatility. The highest volatility occurred between June 2008 and May 2009. This volatility occurred between 12:00 PM and market close. In general, the volatility of REIT prices was twice the volatility of the broad market index over the July 2007 through October 2010 period.

Date: 2013
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DOI: 10.1080/10835547.2013.12089942

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