Abstract

http://ssrn.com/abstract=1344133
 
 

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Long Term Performance of Leveraged ETFs


Lei Lu


Peking University - Guang Hua School of Management

Jun Wang


City University of New York, CUNY Baruch College - Zicklin School of Business - Department of Economics and Finance

Ge Zhang


Long Island University

August 1, 2009


Abstract:     
In this paper, 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.

Number of Pages in PDF File: 31

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Date posted: February 20, 2009 ; Last revised: August 2, 2009

Suggested Citation

Lu, Lei and Wang, Jun and Zhang, Ge, Long Term Performance of Leveraged ETFs (August 1, 2009). Available at SSRN: http://ssrn.com/abstract=1344133 or http://dx.doi.org/10.2139/ssrn.1344133

Contact Information

Lei Lu
Peking University - Guang Hua School of Management ( email )
Peking University
Beijing, Beijing 100871
China
Jun Wang (Contact Author)
City University of New York, CUNY Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )
17 Lexington Avenue
New York, NY 10010
United States
Ge Zhang
Long Island University ( email )
United States
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