Zhang, William2015-07-162015-052015-06-262015Zhang, William. 2015. The Destabilizing Effects of ETFs and Options on Underlying Stock Returns. Bachelor's thesis, Harvard College.http://nrs.harvard.edu/urn-3:HUL.InstRepos:17417583This paper explores the role that ETFs and options have on the underlying stock return. Using a dataset of 400 stocks over a five year period, I examine the effect that ETF rebalancing and option hedging have on stock returns. I find evidence that rebalancing demands for ETFs increase the volatility of the end-of-day returns of the constituent stocks. In addition, I conclude that options have a meaningful positive impact on the underlying stock's daily momentum. These results suggest that stock returns are destabilized by these two financial instruments.application/pdfenEconomics, FinanceThesis or Dissertation