Do leveraged exchange-traded products deliver their stated multiples?

Anthony Loviscek, Hongfei Tang and Xiaoqing Eleanor Xu

Journal of Banking & Finance, 2014, vol. 43, issue C, 29-47

Abstract: Using the longest history of a U.S. equity market index, this paper simulates the return deviation and multiple deviation for Leveraged Exchange-Traded Products (LETPs) with different rebalancing frequencies, including daily, monthly, annually, and every five years, over various holding periods. We find that the general perception that daily-rebalanced LETPs are not suitable for long-term strategies is not substantiated. Advancing the analysis, we construct a comprehensive framework that determines the deviation of an LETP’s effective multiple from its stated product multiple under various rebalancing frequencies and holding period scenarios. The empirical framework and results from this paper hold the promise of guiding regulators, policy makers, and investors in their understanding of the tracking performance of LETPs.

Keywords: Leveraged Exchange-Traded Products (LETPs); Return Multiple; Rebalancing period (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:43:y:2014:i:c:p:29-47

DOI: 10.1016/j.jbankfin.2014.02.008

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