Long term performance of leveraged ETFs

Authors

  • Lei Lu Guanghua School of Management, Peking University, Beijing
  • Jun Wang bDepartment of Economics and Finance, Baruch College, New York
  • Ge Zhang cDepartment of Economics, Finance and Global business, William Paterson University

DOI:

https://doi.org/10.61190/fsr.v21i1.3234

Keywords:

Bootstrapping, Leveraged ETFs

Abstract

In this article, we study leveraged ETFs, in particular, Ultra ETFs and UltraShort ETFs from the ProShares family. These Ultra (UltraShort) ETFs are designed to provide twice (twice the opposite) of the performance of the benchmark on a daily basis. We focus on the relation between long term performance of leveraged ETFs and benchmarks. Our results show that over holding periods no greater than one month, an investor can safely assume that the Ultra (UltraShort) ETF would provide twice the return (twice the negative return) of the underlying benchmark. Over the holding period of one quarter, the UltraShort ETFs can deviate from twice the negative returns of the benchmark. For Ultra ETFs, this deviation occurs when the holding period is one year. Finally, we show that the long term performance of the leveraged ETFs is negatively impacted by the quadratic variation and the auto-variation during the period, with auto-variation being the more dominant factor.

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Published

2012-03-31

How to Cite

Lu, L., Wang, J., & Zhang, G. (2012). Long term performance of leveraged ETFs. Financial Services Review, 21(1), 63–80. https://doi.org/10.61190/fsr.v21i1.3234

Issue

Vol. 21 No. 1 (2012): FSR Spring 2012

Section

New Original Submission

License

Copyright (c) 2014 Academy of Financial Services

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