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File name: SSRN-id1442568. ; Size: 213K
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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 CitationLu, Lei, 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
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