Long-Term Equity Investing with Leveraged Exchange-Traded Funds

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

“…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.…”

“…tire history of Dow Jones Industry Average, [4] confirmed that the general perception regarding the value destruction arising from index return's path is not substantiated. Similarly, [5] find bull LETFs benchmarked to the S&P 500 Index produced much higher return multiple than their given leverage over long investment horizon. As shown in our later empirical tests, there is much to say about the performance properties of Chinese LETFs, which are different from either the performance enhancement documented in [4] and [5] or the value destruction warned by the U.S. Securities and Exchange Commission (SEC) and financial media.…”

“…However, in terms of frequency, both bull and bear funds are likely to underperform, relative to their naively expected counterparts, more often for holding periods of 5 trading days or longer. These results indicate that the performance of CSI 300 LETFs based on the entire history of index is complicated and cannot be outlined directly by the performance enhancement documented in [4] and [5] nor the potential value destruction often warned by regulators and financial media.…”

“…Overall, our study not only provides a comprehensive and detailed understanding on the performance of LETFs leveraging Chinese A-share market, but also yields several interesting results. In particular, the performance of Chinese LETFs cannot be outlined directly by the performance enhancement documented in [4] and [5] nor the potential value destruction often warned by regulators and financial media. Moreover, Chinese LETFs seem to have more superior performance than U.S. LETFs over short holding periods but this result reverses over long holding periods, thereby alleviating the concern that high volatility of index is necessarily linked with poor LETF performance.…”

Exchange traded funds in Europe and the US

“…Nguyen and Diaz (2019) study the performance of traditional and leveraged real estate ETFs and find evidence of volatility clustering, leverage effects, and volatility asymmetry, which suggest that high volatility regimes like that of the subprime mortgage crisis in 2008 have a global impact that negatively affects both US and Global Real Estate ETFs Curcio and Dickerson (2017). test bull leveraged exchange-traded funds under conditions of upward-trending stock prices in the broad market.…”