Nomura is out with some interesting research today, highlighting something that happened in yesterday's stock rout -- selling into the close.
They contend that leveraged ETFs are exagerrating stock market moves in the final 30 minutes of trading, both to the upside and downside. Yesterday, they estimate it added $15.5 billion of selling.
Bloomberg wrote about it today and spoke with Nomura's Charlie McElligott:
“It’s absolutely real,” said Charlie McElligott, a cross-asset strategist at Nomura, referring to the ability of leveraged ETFs to spur broader moves across the equity ecosystem thanks to their rebalancing moves. He puts the boom in such products down to retail investors looking for big wins.
“Day traders remain drunk on high intraday vol and continue to actively seek-out large price swings,” he said by email.
Now, I get the sense that this is something that algos or hedge funds already know, which is why it looks like it was front-run yesterday. At the same time, I think there's still a future trade there -- at least on future days when there's a strong fundamental catalyst for strong moves.
