 A tracking error approach to leveraged ETFs: Are they really that bad?Vipul K. Bansal and John F. Marshall Global Finance Journal, 2015, vol. 26, issue C, 47-63 Abstract: Exchange traded funds or ETFs are undoubtedly one of the most successful financial innovations of the past two decades. They were largely noncontroversial until the advent of leveraged exchange traded funds or LETFs which were introduced in 2006. LETFs have been criticized by many in the popular press, but also in a number of scholarly journals, as routinely underperforming their stated return objectives. They have also become the subject of many lawsuits. Noticeably few scholarly papers have defended them. We take a tracking error approach, using both simulation analysis and past historical data, to examine how these funds would have behaved under various return/volatility scenarios. We conclude that LETFs of the 2×, 3×, −2×, and −3× varieties have been wrongly maligned and we believe they should be considered for inclusion in aggressive portfolios. Keywords: Exchange traded funds; Leveraged exchange traded funds; Tracking error; Constant leverage trap; Dynamic rebalancing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:26:y:2015:i:c:p:47-63 DOI: 10.1016/j.gfj.2015.01.004 Access Statistics for this article Global Finance Journal is currently edited by Manuchehr Shahrokhi More articles in Global Finance Journal from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.