The Role of Leveraged ETFs and Option Market Imbalances on End-of-Day Price Dynamics
Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2021-09-17
Author(s)
Abstract (De)
Leveraged ETFs and market makers who are active in option markets must ad-just imbalances arising from market movements. Establishing delta-neutrality may cause either return momentum or reversal depending on the sign and size of the imbalance vis-a-vis market prevailing liquidity. We find that a large and negative (positive) aggregated gamma imbalance, relative to the average dollar volume, gives rise to an economically and statistically significant end-of-day momentum (rever-sal). We compare this channel to the rebalancing of leveraged ETFs and find that the effect generated by leveraged ETFs is economically larger. Consistent with the notion of temporary price pressure, the documented effects quickly revert at the next day’s open. Information-based explanations are unlikely to cause the results, suggesting a non-informational channel through which leveraged ETFs and option markets affect underlying stocks towards the market close.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
None
Refereed
No
Publisher
SoF-HSG
Number
2021/14
Pages
77
Subject(s)
Contact Email Address
mathis.moerke@unisg.ch
Eprints ID
264338
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SSRN-id3925725 (1).pdf
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Adobe PDF
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open.access
Name
SSRN-id3925725 (1).pdf
Size
900.95 KB
Format
Adobe PDF
Checksum (MD5)
5f80f2691428541b63942bc5b1025ecb