Two investment options for bearish etf investors: Inverse etf and shorting etf

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216224%3A14560%2F19%3A00111127" target="_blank" >RIV/00216224:14560/19:00111127 - isvavai.cz</a>

Result on the web

<a href="https://www.mdpi.com/2227-7072/7/2/31" target="_blank" >https://www.mdpi.com/2227-7072/7/2/31</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.3390/ijfs7020031" target="_blank" >10.3390/ijfs7020031</a>

Result language

angličtina

Original language name

Two investment options for bearish etf investors: Inverse etf and shorting etf

Original language description

A high liquidity, low expense ratio and the possibility to conduct arbitrage allow exchange-traded funds (ETFs) to be used for short sales. Bearish investors can also buy inverse ETFs. This paper aims to outline two investment approaches for bearish ETF investors and the differences between these two approaches; it also aims to examine the relationship between price and an indicator of volume and evaluate the final positions in selected ETFs in selected periods. Short ETFs dominate in simplicity, flexibility, paying out dividends and especially in the limited size of the loss. On the other hand, their structure, which demands daily rebalancing, causes substantial deviation from the benchmark in the long-term and leads to a higher expense ratio, and lower liquidity increases bid-ask spreads. Negative aspects of ETF short selling lie in unlimited loss, high borrowing costs, the need for margin accounts, variability of loan fees and the possibility of a transaction recall by the lender. On the contrary, margin operations enable potentially higher appreciation of capital by generating rebate rates. Our results show that with the decrease in value of the most used ETFs, short interest is growing for those funds where there is a very strong negative correlation implying hedging tendencies. Short selling proved to be a more advantageous strategy in the observed period of market downturn, as well as in 2011–2017, due to negative returns, however, by applying margin trading inverse ETFs turned out to make less losses. Sector-oriented inverse ETFs are the exception, where the largest differences between these two strategies are recorded. However, the final conclusion of the suitability of one of the analyzed strategies depends on the market volatility and the direction of the market itself.

Czech name

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Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

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OECD FORD branch

50206 - Finance

Project

—

Continuities

S - Specificky vyzkum na vysokych skolach

Publication year

2019

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

International Journal of Financial Studies

ISSN

2227-7072

e-ISSN

—

Volume of the periodical

7

Issue of the periodical within the volume

2

Country of publishing house

CH - SWITZERLAND

Number of pages

14

Pages from-to

1-14

UT code for WoS article

000474931600014

EID of the result in the Scopus database

2-s2.0-85067544971