Multi-day Return Properties of Leveraged Index ETFs

71 Pages Posted: Last revised: 1 Feb 2025

See all articles by Baolian Wang

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: January 31, 2025

Abstract

This paper examines the multi-day return properties of leveraged ETFs (LETFs), which use daily rebalancing to maintain a constant leverage ratio. Critics claim LETFs deviate from and lose value over time relative to their non-reset portfolios—portfolios with the same initial leverage but no daily rebalancing. We challenge these assertions through theoretical analysis and simulations. We find that LETFs’ multi-day returns closely align with those of non-reset portfolios across most indices and holding periods (up to one year). While substantial deviations can occur under high volatility and long holding periods, they are positively skewed and generally favorable.

JEL Classification: G11, G12

Suggested Citation

Wang, Baolian, Multi-day Return Properties of Leveraged Index ETFs (January 31, 2025). Available at SSRN: https://ssrn.com/abstract=

Baolian Wang (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

317C Stuzin Hall
Gainesville, FL 32611
United States

HOME PAGE: http://www.wangbaolian.com

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