Rebalancing of leveraged ETFs could be a major force behind increased volume and volatility in the last hour of trading.
NEW YORK (CNNMoney) -- If the daily 200-point drops or spikes in the Dow aren't enough to cause heart palpations among investors, the seemingly inexplicable gyrations in the final hour of trading probably do.
"There have been more pronounced moves in that last hour that are more violent than in the other five and a half hours of the day," said Peter Boockvar, equity strategist at Miller Tabak + Co.
At the New York Stock Exchange, trading volumes between 3 p.m. ET and 4 p.m. ET are roughly four to five times heavier than any other time of day.
One big reason: the explosion of leveraged exchange-traded funds.
"Leveraged ETFs are growing, so a bunch of people are rushing to the market at the end of day," said Pauline Shun, associate professor of finance at York University in Canada who has written studies on leveraged ETFs. "It has to affect volatility at the end of the day."
Due to their structure, leveraged ETFs conduct most of their trading during that last hour because they need to rebalance by day's end, whereas traditional ETFs buy and sell stocks throughout the day and don't do a daily rebalance.
Leveraged ETFs are riskier than
http://money.cnn.com/2011/11/08/markets/leveraged_etfs/index.htm?iid=HP_LN
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