Levered and Inverse ETPs: Blessing or Curse?

Financial Analysts Journal (forthcoming)

33 Pages Posted: 6 May 2020 Last revised: 25 Sep 2020

See all articles by Colby Pessina

Colby Pessina

Vanderbilt University - Owen Graduate School of Management

Robert E. Whaley

Vanderbilt University - Finance

Date Written: April 10, 2020

Abstract

Levered and inverse ETPs are designed to provide geared long and short exposures to the
daily returns of different benchmark indexes. The benchmarks can be any reference index.
The popular ones are on stocks, bonds, commodities and volatility. The problem with these
products is that they are not generally well-understood, particularly those whose
benchmarks are futures-based indexes. They are neither suitable buy-and-hold investments
nor effective hedging tools. They are unstable and exist only as a mechanism for placing
short-term directional bets. Levered and inverse products are not, and cannot be, effective
investment management tools.

Keywords: Levered and inverse funds, geared investments, front-running, futures indexes, contango July 17, 2020 *Corresponding

JEL Classification: G10, G11, G12, G13, G18

Suggested Citation

Pessina, Colby and Whaley, Robert E., Levered and Inverse ETPs: Blessing or Curse? (April 10, 2020). Financial Analysts Journal (forthcoming), Available at SSRN: https://ssrn.com/abstract=3572981 or http://dx.doi.org/10.2139/ssrn.3572981

Colby Pessina

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Robert E. Whaley (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-343-7747 (Phone)
615-376-8879 (Fax)

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