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Have leveraged and traditional ETFs impacted the volatility of real estate stock prices?

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  • Richard J. Curcio
  • Randy I. Anderson
  • Hany Guirguis
  • Vaneesha Boney

Abstract

Exchange Traded Funds (ETFs), including the innovative leveraged (long and inverse) types, and the ever more creative traditional versions, are accelerating in popularity as preferred investment and trading vehicles. Real estate, a major investment sector, has been made more accessible through these tools. This study investigates if the introduction of real estate ETFs is impacting the volatility of their underlying real estate stocks. Tests conclude that the introduction of leveraged (long and inverse) and traditional real estate and real estate related ETFs, linked to the Dow Jones US Real Estate and Financial Indices and the leveraged (long and inverse) ETFs, benchmarked to the Russell 1000 Financial Services Index, significantly increased the volatility in their component real estate stock prices. The leveraged ETFs tied to the Dow Jones US Real Estate and Financial Indices caused the highest volatility, approximately tripling the volatility in the underlying real estate securities. Traditional ETFs were second, causing slightly more than a 70% increase in volatility, while the leveraged ETFs linked to the Russell 1000 Financial Services Index, having induced a 50% increase in volatility, were third. The increased volatility could not be attributed to any other external event.

Suggested Citation

  • Richard J. Curcio & Randy I. Anderson & Hany Guirguis & Vaneesha Boney, 2012. "Have leveraged and traditional ETFs impacted the volatility of real estate stock prices?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(9), pages 709-722, May.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:9:p:709-722
    DOI: 10.1080/09603107.2011.624080
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    Cited by:

    1. Marszk, Adam & Lechman, Ewa, 2021. "Reshaping financial systems: The role of ICT in the diffusion of financial innovations – Recent evidence from European countries," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    2. Qing Bai & Shaun A. Bond & Brian Hatch, 2015. "The Impact of Leveraged and Inverse ETFs on Underlying Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 37-66, March.
    3. Luca J. Liebi, 2020. "The effect of ETFs on financial markets: a literature review," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(2), pages 165-178, June.
    4. Farouk, Faizal & Masih, Mansur, 2016. "Are there profit (returns) in Shariah-compliant exchange traded funds? The multiscale propensity," Research in International Business and Finance, Elsevier, vol. 38(C), pages 360-375.

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