Korea Capital Market Institute warning: leveraged ETFs shift costs onto retail investors
Lee Hyo-seob, head of the Financial Industry Division at the Korea Capital Market Institute, warned that the boom in leveraged ETF investing is increasing stock market volatility and creating a structure in which retail investors bear the resulting hedging costs. He said measures to escape chronic undervaluation through institutional reform are needed.
Lee Hyo-seob, head of the Financial Industry Division at the Korea Capital Market Institute, warned that the boom in leveraged ETF investing is increasing stock market volatility and that, in the end, individual investors are ending up bearing the cost. The reason this matters to investors is that greater volatility can quickly deepen losses, and if individual investors bear hedging costs, total investment costs rise.
He said that the expansion of leveraged products has, to some extent, contributed to the value-up of some stocks. But he also pointed to the structural problem that the burden of hedging costs and heightened volatility lead to losses for retail investors.
The report also raised the need for institutionalization to move beyond chronic undervaluation. Specifically, it said that systems such as market stabilization mechanisms and improved cost-sharing structures should be discussed.
Lee explained that the current ETF management structure creates hedging demand and, as a result, amplifies volatility in the market. He added that individual investors are easily left to bear the risk without knowing about this structure.
In summary, it is pointed out that the spread of leveraged ETFs has produced some positive effects, but the side effects of passing on hedging costs and widening volatility are also growing. Institutional responses remain a matter for future discussion.
Sources: 매일경제 증권
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