Do leveraged exchange-traded products deliver their stated multiples?

Loviscek, Anthony L.; Tang, Hongfei; Xu, Xiaoqing Eleanor

doi:10.1016/j.jbankfin.2014.02.008

Cited by 15 publications

(18 citation statements)

References 9 publications

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“…They conclude that LETFs are not suited for long-term investors with a buy-and-hold (BH) strategy. By contrast, Loviscek et al (2014) find that the general perception that daily-rebalanced LETFs are not suitable for longterm strategies is not substantiated. Jarrow (2010) ascertains the risks of LETFs, showing that a k-times leveraged ETF will not earn k times the ETF's return.…”

contrasting

confidence: 57%

Further evidence on calendar anomalies

Hsu

Koedijk

Liu

et al. 2021

Euro Fin Management

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This study aims to investigate the day-of-theweek effect of cross-market leveraged exchange-traded funds (LETFs) in the Taiwanese stock market. We find that Wednesday's overnight returns are significantly positive for bull 2X LETFs tracking major stock indices of the Chinese market, whereas no such an effect is found for ETFs tracking local or other international stock markets. The "T + 1" trading rule and a lagged Monday effect potentially explain this anomaly. Finally, simulation analysis of various simple trading rules further shows that there exist exploitable profit opportunities in cross-market bull 2X LETF markets.

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contrasting

confidence: 57%

Further evidence on calendar anomalies

Hsu

Koedijk

Liu

et al. 2021

Euro Fin Management

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“…These results disclose the complicated behaviors of Chinese LETFs' performance, suggesting that neither the performance enhancement documented in [4] and [5] nor the value destruction warned by the SEC is applicable to the performance of Chinese LETFs during our sample period.…”

Section: Introductionmentioning

confidence: 72%

“…There are two popular simulation methods in the literature used to examine LETF performance. One method is to simulate using the actual historical index returns [4] and the other is to use the Monte Carlo simulation based on an assumed distribution, such as log normal returns [30]. The historical index return method has the advantage to be objective as the historical returns are unique.…”

Section: Literature Review On Letf Performancementioning

confidence: 99%

“…Our study makes some innovative contributions to the literature. First, to the best of our knowledge, we are the first to study the performance of domestic LETFs tracking the stock indices of Chinese A-share markets 4 . With the rapid development of Chinese economy and financial system, our examination on the performance of Chinese potential LETFs is timely and has practical significance for fund issuers and regulators in China, especially as some Chinese fund corporations submitted application materials of LETFs to the China Securities Regulatory Commission recently.…”

Section: Introductionmentioning

confidence: 99%

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How Would Leveraged Exchange-Traded Funds Perform in Chinese A-Share Market?

Huang¹,

Tang²

2022

JMF

Self Cite

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This paper examines the performance of Leveraged Exchange-Traded Funds (LETFs) on Chinese A-share indices. We find that bull funds deliver positive average returns and that both the bull and bear Chinese LETFs on average (but less often) exceed the naively expected returns over multiple holding days. Compared to the LETFs on the equity indices of the United States, Chinese bull funds have higher returns over short holding periods, but not over long holding periods. During financial crises, Chinese LETFs suffer more erosion than in normal time and bear funds likely experience positive returns. Lastly, we derive a model to guide investors on when LETFs are likely to perform better or worse than naïve expectations. We not only reveal the potential performance of Chinese LETFs to market participants and regulators for the first time, but also expand the existing LETF literature by documenting new evidence from the unique A-share market.

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“…Those will somewhat reduce the fund performance but not change the picture in a qualitative way. Probably more important will be tracking errors (Holzhauer, 2013;Loviscek, 2014), the degree to which the fund delivers its promised daily leverage factor which here is assumed to be accurate. While occasional and random deviations might not have much of an effect, systematic under performance on upswings combined with over performance on down-swings would have a significant impact in the long term.…”

Section: Discussionmentioning

confidence: 99%

Competition Between Volatility and Overall Market Gain and the Performance of Leveraged Index Funds

Schad¹

2018

IJFR

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A simple yet powerful mathematical model is developed for comparison of the performance of leveraged funds versus that of their underlying index. The model strictly separates the pure market volatility from the actual long term gain of the market. This allows to study the interplay between volatility of various amplitude and gain. The fund performance is analyzed for different factors of leverage and clear limits for still acceptable market volatility are identified. For low volatility values the performance of leveraged index funds significantly exceeds the performance of what the leverage factor would suggest, reaching gains as large as 7x the gain of the index for a 3x leveraged fund. This favorable regime quickly deteriorates for intermediate values of market volatility and produces increasingly negative returns once the daily fluctuations exceed 1.5 to 2%. The model provides a practical understanding of the risks and opportunities of leveraged funds.

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Do leveraged exchange-traded products deliver their stated multiples?

Cited by 15 publications

References 9 publications

Further evidence on calendar anomalies

Further evidence on calendar anomalies

How Would Leveraged Exchange-Traded Funds Perform in Chinese A-Share Market?

Competition Between Volatility and Overall Market Gain and the Performance of Leveraged Index Funds

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