Return and volatility of emerging markets leveraged ETFs

Gerasimos Rompotis ()
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Gerasimos Rompotis: National and Kapodistrian University of Athens

Journal of Asset Management, 2016, vol. 17, issue 3, No 3, 165-194

Abstract: Abstract This article focuses on the performance and volatility of leveraged Exchange Trade Funds (ETFs) investing in stock indices from emerging markets. A sample of 12 leveraged and 11 inverse leveraged ETFs covering country or regional emerging market indices is employed to investigate their short-term and long-term performance vis-à-vis their targeted returns, their volatility, the persistence in their volatility, spillover effects on returns and the transmission of volatility between the ETFs and underlying benchmarks. The results show that the average leveraged ETFs can deliver its return target over a weekly period at a maximum. The average inverse ETF can do so only over a 2-day period. As far as risk is concerned, the results show that the volatility of leveraged ETFs is quite aligned to the volatility of targets while it is significantly persistent through time. Moreover, it is found that the leverage effect suggested by Black, which states that the volatility of a stock increases when equity prices fall, applies to leveraged ETFs but the opposite effect applies to inverse leveraged ETFs. Finally, significant bilateral spillover effects on return and volatility between ETFs and benchmarks are revealed.

Keywords: leveraged ETFs; emerging markets; return; volatility; spillover effects (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1057/jam.2016.2

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