Levered Exchange-Traded Products: Theory and Practice

John Mulvey (), Thomas Nadbielny () and Woo Chang Kim ()
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John Mulvey: Princeton University, Postal: Sherred Hall, Princeton University, Princeton, NJ 08542
Thomas Nadbielny: Benchmark Advisors, LLC
Woo Chang Kim: KAIST

Journal of Financial Perspectives, 2013, vol. 1, issue 2, 105-118

Abstract: When levered exchange products were first introduced, they were heralded as a convenient mechanism for investors to achieve a better result than with more traditional borrowing and leveraging trategies. This article shows that rebalancing decisions have a major impact on the performance of levered and inverse strategies, especially during periods of high volatility. It considers the actual benefits of levered exchangetraded products, which do not always provide returns in line with their anticipated performance, and discusses the best rebalancing approaches. It demonstrates, through empirical testing, situations when daily rebalance leveraging is likely to outperform term borrowing leverage, and vice-versa.

Keywords: Exchange-traded products; Leverage; Rebalancing rules (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0016

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