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By Ben Baden
August gave stock investors a wild ride. Daily 100-point-plus swings in both directions were common. That's stirred up discussion that exchange-traded funds (ETFs), which are similar to stocks because they trade on exchanges, could be helping fuel volatility in the stock market.
In August, ETF volume reached the highest level since 2009, according to market research firm
Is there cause for concern? Probably not, according to many experts.
ETF trading volume increased dramatically in August. According to
For many popular ETFs, including SPDR S&P 500 (symbol: SPY), iPath S&P 500 VIX Short-Term Futures ETN (VXX), a product that tracks volatility in the market, and Direxion Daily Financial Bull 3X Shares (FAS), a leveraged fund that tracks financial services companies, shares experienced huge spikes in trading in August: 104 percent, 119 percent, and 200 percent, respectively. Overall trading volume in leveraged ETFs, according to Birinyi, rose 114 percent in August, and that accounted for 19 percent of all ETF shares traded last month.
The kicker, says Paul Justice, director of ETF research at
Currently, inverse stock ETFs (those that bet against the market) and leveraged bullish stock ETFs (those betting for the market) hold about the same amount of assets so the two offset each other, and the net impact on the market is minimal. The net effect of all the trading in those funds is only $13.5 million, according to
While there isn't much of a case to be made now, Pleines says the growing popularity of ETFs could eventually have a bigger impact on stock market volatility. "I don't think it's playing a huge role in these swings yet, but it does have the potential because it's such a growing asset group," Pleines says.
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