Fed warns that leveraged ETFs increase market volatility through cascade reaction

Zero Hedge Watch

Fed warns that leveraged ETFs increase market volatility through cascade reaction. Leverage ETFs use debt to build a bigger investment portfolio and higher returns per dollar invested. The size of these funds and their automatic rebalancing strategies has the Federal Reserve worried. A large market move, especially at the end of the day, could cause these ETFs to start a chain reaction of transactions adding more volatility to the system. The Fed believes this 'cascade type of reaction contributed to the damage of the financial crisis and also increased market volatility during the second half of 2011. (VIEW LINK)


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