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The Herds of Bulls and Bears in Leveraged ETF Market

Author

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  • Stephen Bahadar
  • Haroon Mahmood
  • Rashid Zaman

Abstract

The authors investigate the unexplored herding behavior of investors in a leveraged exchange-traded funds (LETFs) market by examining U.S.-listed LETFs, which offers both long and short positions with target return multiples (such as +2x) and inverse multiples (e.g., –1x and –2x) of the tracking indices in the form of bull and bear LETFs, respectively. Overall findings reveal the presence of significant herding behavior in LETFs. More specifically, herding is prominent in bear LETFs during daily trading, asymmetric market conditions (e.g., rising/declining market return, trading volume, trading volatility), and the global financial crisis period. Further, herding is found to be spurious during the normal trading days in the LETFs market but during the global financial crisis, herding occurs in response to the non-fundamental factors.

Suggested Citation

  • Stephen Bahadar & Haroon Mahmood & Rashid Zaman, 2019. "The Herds of Bulls and Bears in Leveraged ETF Market," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 20(4), pages 408-423, October.
    • Handle: RePEc:taf:hbhfxx:v:20:y:2019:i:4:p:408-423
    DOI: 10.1080/15427560.2019.1553177
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    Cited by:

    1. Stephen Bahadar & Muhammad Nadeem & Rashid Zaman, 2023. "Toxic chemical releases and idiosyncratic return volatility: A prospect theory perspective," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2109-2143, June.
    2. Syed Riaz Mahmood Ali, 2022. "Herding in different states and terms: evidence from the cryptocurrency market," Journal of Asset Management, Palgrave Macmillan, vol. 23(4), pages 322-336, July.
    3. Rashid Zaman & Stephen Bahadar & Haroon Mahmood, 2021. "Corporate irresponsibility and stock price crash risk," International Review of Finance, International Review of Finance Ltd., vol. 21(3), pages 786-820, September.

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