Do leveraged exchange-traded products deliver their stated multiples? |
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| Institution: | 1. Department of Accounting, Finance, and Economics, College of Business Administration, Winthrop University, 423 Thurmond Building, Rock Hill, SC 29733, United States;2. Department of Finance, Belk College of Business, University of North Carolina at Charlotte, 9201 University City Blvd., Charlotte, NC 28223, United States;1. Institut de statistique, biostatistique et sciences actuarielles (ISBA), Université Catholique de Louvain, Louvain-la-Neuve, Belgium;2. Graduate Institute of Finance, National Taiwan University of Science and Technology, Taiwan;3. Department of Finance, National Taiwan University, Taiwan;1. School of Business, University of Alberta, Canada;2. Department of Economics, Hitotsubashi University, Japan;1. Faculty of Economics and Business, University of Groningen, The Netherlands;2. Division of Economics, University of Stirling, United Kingdom |
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| Abstract: | Using the longest history of a U.S. equity market index, this paper simulates the return deviation and multiple deviation for Leveraged Exchange-Traded Products (LETPs) with different rebalancing frequencies, including daily, monthly, annually, and every five years, over various holding periods. We find that the general perception that daily-rebalanced LETPs are not suitable for long-term strategies is not substantiated. Advancing the analysis, we construct a comprehensive framework that determines the deviation of an LETP’s effective multiple from its stated product multiple under various rebalancing frequencies and holding period scenarios. The empirical framework and results from this paper hold the promise of guiding regulators, policy makers, and investors in their understanding of the tracking performance of LETPs. |
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| Keywords: | Leveraged Exchange-Traded Products (LETPs) Return Multiple Rebalancing period |
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