Do Leveraged ETF's Rebalancing Trades Magnify BigMarket Moves?

Abstract

Some market participants as well as the popular press assert that rebalancing trades by Leveraged Exchange Traded Funds (ETFs) are causing large end of the day market moves. This study investigates whether there is statistical support for this claim. Findings based on intraday data for the DJIA, S&P 500, and Russell 2000 indicate that the introduction of leveraged ETFs may have increased the probability of end of day momentum during large market moves, but not the magnitude. Results suggest that leveraged ETF rebalancing trades are moving the S&P 500, DJIA, or the Russell 2000 by less than 0.03% over the last 15 minutes which converts to only a fractional point move.