LIETF TRADING BEHAVIOR DURING U.S. – CHINA TRADE WAR
DOI:
https://doi.org/10.2478/eoik-2025-0100Keywords:
Leveraged and Inverse Exchange-Traded Fund (LIETF), Order imbalance, News reaction, Trend-chasing behavior, Trade informativeness, Sophisticated investors, U.S.-China trade war newsAbstract
This paper examines the trading behavior of investors in Leveraged and
Inverse Exchange-Traded Funds (LIETFs) during the early phase of the
U.S.–China tariff trade war, from January to November 2018. Using pan-
el data models, we analyze LIETF reactions to 17 trade-war news events
identified by China Briefing. The study focuses on the 12 most liquid
LIETFs tracking the S&P 500 and Nasdaq-100 indices, with trade and
quote data obtained from Reuters DataScope Select. Our first objective
is to test whether LIETF investors’ trading activity changes significantly
around trade-war announcements, and our results provide strong support
for this hypothesis. To further explore trading dynamics, we construct
two measures of abnormal activity—the abnormal buy–sell ratio and the
abnormal order imbalance—and test whether LIETF investors can pre-
dict subsequent market movements. We find little evidence of such pre-
dictive ability. Finally, we assess short-term momentum behavior: while
investors display trend-chasing in intraday intervals of less than 30 min-
utes, they tend to bet on reversals of the underlying indices over longer
intervals. Overall, this study contributes to understanding how investors
in leveraged products respond to geopolitical shocks. Given the growing
asset base of U.S.-listed LIETFs and the regulatory importance of inves-
tor behavior during periods of heightened uncertainty, our findings are
relevant to academics, practitioners, and market supervisors.
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