Single-stock leverage ETF trading 58trillion drove up volatility
The financial investment industry analyzed that concentrated trading in single-stock leverage ETFs and inflows of individual investor funds intensified selling pressure with a “short gamma” character, increasing index volatility. 7Cumulative trading value over the trading days was 58trillion won, while net purchases by individual investors totaled 7trillion 4billion won.
The financial investment industry analyzed that single-stock leveraged exchange-traded funds (ETFs) intensified selling pressure with a “short gamma” character during market declines, increasing index volatility. The analysis explains that this phenomenon emerged as the leverage structure and concentrated trading worked together. The industry believes that this structure triggers additional selling volume during sharp declines.
The cumulative trading value of 14single-stock leverage ETF issues reached 58trillion won. Trading became concentrated over a short period, confirming that liquidity was skewed toward specific issues. The industry said that the concentration of trading value was one factor behind the increase in volatility.
During the same period, net purchases by individual investors totaled 7trillion 4billion won. A notable feature was the large inflow of individual funds into leveraged products. Individual buying was identified as concentrated in some issues.
There was also a large inflow of funds into leveraged products listed overseas. The Samsung Electronics leveraged ETF listed in Hong Kong 2-times leveraged ETF received inflows this year totaling 2trillion 5hundred billion won, while the SK hynix 2-times leveraged ETF received 2,560hundred million won. A common feature is that individual investor funds also flowed into overseas products.
The “short gamma” cited by the industry refers to a structure in which selling or buying is amplified as providers of leveraged ETFs or market makers adjust their positions in response to price movements. When the underlying stock price falls, additional selling emerges during the hedging process, while buying occurs in the opposite direction. The explanation is that this mechanism increases index volatility during a sharp decline.
The financial investment industry believes that the trading value and scale of individual investor fund inflows observed in Korea and overseas are key factors behind the increased volatility associated with leveraged ETFs. The related trend appeared mainly in stocks where trading was concentrated. Market participants are monitoring future trading patterns.
Sources: 연합인포맥스
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