Investment performance of shorted leveraged ETF pairs

Xinxin Jiang and Stanley Peterburgsky

Applied Economics, 2017, vol. 49, issue 44, 4410-4427

Abstract: We analyze investment strategies involving triple-leveraged and inverse triple-leveraged ETF pairs by simulating daily returns over a 48-year period. Our results show that many such strategies significantly outperform the S&P 500 on a risk-adjusted basis. For example, when shorting the bear triple-leveraged ETF and the bull triple-leveraged ETF in a 2:1 proportion (while going long Treasuries), we find that the average annual Sharpe ratio is more than four times higher than for the S&P 500 and that the strategy outperforms the S&P 500 in 43 of the 48 years. Our results are robust to variations in bear/bull proportions, rebalance thresholds, and underlying parameters.

Date: 2017
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DOI: 10.1080/00036846.2017.1282149

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