Liquidity Provision to Leveraged ETFs and Equity Options Rebalancing Flows: Evidence from End-of-Day Stock Prices

Item Type Journal paper
Abstract Rebalancing of leveraged ETFs (LETFs) and delta-hedging of equity options by intermediaries are two distinct and economically significant sources of liquidity demands. We show that they induce end-of-day momentum and mean-reversion in returns. While gamma effects are persistent throughout our sample, LETFs effects have decreased over time. We empirically study these effects and their potential drivers. We find that LETF flows attract more liquidity provision and their effects on prices are shorter-lived. Intermediaries can strategically decide the timing of their delta-hedging, resulting in less predictable flows. This shows the benefits of information disclosure on market liquidity and price distortion.
Authors Barbon, Andrea; Beckmeyer, Heiner; Buraschi, Andrea & Mörke, Mathis Rudolf Werner
Language English
Subjects finance
HSG Classification contribution to scientific community
Refereed No
Date 2022
Depositing User Mathis Rudolf Werner Mörke
Date Deposited 07 Jul 2022 15:16
Last Modified 20 Jul 2022 17:48
URI: https://www.alexandria.unisg.ch/publications/266653

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Barbon, Andrea; Beckmeyer, Heiner; Buraschi, Andrea & Mörke, Mathis Rudolf Werner (2022) Liquidity Provision to Leveraged ETFs and Equity Options Rebalancing Flows: Evidence from End-of-Day Stock Prices.

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https://www.alexandria.unisg.ch/id/eprint/266653
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