The Golden Target: Analyzing the Tracking Performance of Leveraged Gold ETFs

Studies in Economics and Finance, vol 32, issue 3, pp.278 - 297, 2015

20 Pages Posted: 20 Aug 2014 Last revised: 1 Aug 2015

See all articles by Tim Leung

Tim Leung

University of Washington - Department of Applied Math

Brian Ward

Columbia University

Date Written: January 22, 2015

Abstract

This paper studies the empirical tracking performance of leveraged ETFs on gold, and their price relationships with gold spot and futures. For tracking the gold spot, we find that our optimized portfolios with short-term gold futures are highly effective in replicating prices. The market-traded gold ETF (GLD) also exhibits a similar tracking performance. However, we show that leveraged gold ETFs tend to underperform their corresponding leveraged benchmark. Moreover, the underperformance worsens over a longer holding period. In contrast, we illustrate that a dynamic portfolio of gold futures tracks significantly better than various static portfolios. The dynamic portfolio also consistently outperforms the respective market-traded LETFs for different leverage ratios over multiple years.

Keywords: gold spot, futures, exchange-traded funds, leveraged ETFs

JEL Classification: G11, B23, C10

Suggested Citation

Leung, Tim and Ward, Brian, The Golden Target: Analyzing the Tracking Performance of Leveraged Gold ETFs (January 22, 2015). Studies in Economics and Finance, vol 32, issue 3, pp.278 - 297, 2015. Available at SSRN: https://ssrn.com/abstract=2481785 or http://dx.doi.org/10.2139/ssrn.2481785

Tim Leung (Contact Author)

University of Washington - Department of Applied Math ( email )

Lewis Hall 217
Department of Applied Math
Seattle, WA 98195
United States

HOME PAGE: http://faculty.washington.edu/timleung/

Brian Ward

Columbia University ( email )

New York, NY
United States

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