Abstract
The authors investigate the unexplored herding behavior of investors in a leveraged exchange-traded funds (LETFs) market by examining U.S.-listed LETFs, which offers both long and short positions with target return multiples (such as +2x) and inverse multiples (e.g., –1x and –2x) of the tracking indices in the form of bull and bear LETFs, respectively. Overall findings reveal the presence of significant herding behavior in LETFs. More specifically, herding is prominent in bear LETFs during daily trading, asymmetric market conditions (e.g., rising/declining market return, trading volume, trading volatility), and the global financial crisis period. Further, herding is found to be spurious during the normal trading days in the LETFs market but during the global financial crisis, herding occurs in response to the non-fundamental factors.
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