Levered and Inverse Exchange-Traded Products: Evidence from Simulations

IF 0.4 Q4 BUSINESS, FINANCE Journal of Alternative Investments Pub Date : 2022-12-20 DOI:10.3905/jai.2022.1.179
D. Chambers, Stephen M. Horan
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Abstract

Levered exchange-traded products have been criticized as offering inferior long-term returns for two reasons: their higher volatility and, apparently, the belief that volatility diminishes long-term expected returns. Following the approach of Pessina and Whaley (2021) we analyze simulated returns of levered and inverse exchange traded funds (ETFs) and conclude that their expected long-run values are not diminished by volatility. We identity natural counterparties to the rebalancing trades of levered exchange traded funds (LETFs) and analyze the impact of autocorrelation on daily-rebalanced LETF returns, theoretically and empirically, for both LETFs and their counterparties. The results indicate that negative (positive) autocorrelation in daily returns will cause LETFs to perform relatively poorly (well) and their counterparties to perform relatively well (poorly). Accordingly, the extent to which levered and inverse ETFs have legitimate hedging applications and reasonable risk-adjusted returns (setting aside trading costs and fund expenses) depends on the extent to which the underlying returns are consistent with weak-form market efficiency.
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杠杆和反向交易所交易产品:来自模拟的证据
杠杆交易所交易产品被批评为长期回报率较低,原因有两个:其波动性较高,而且显然认为波动性会降低长期预期回报。根据Pessina和Whaley(2021)的方法,我们分析了杠杆和反向交易所交易基金(ETF)的模拟回报,并得出结论,它们的预期长期价值不会因波动而降低。我们确定了杠杆交易所交易基金(LETF)再平衡交易的自然交易对手,并从理论和实证上分析了自相关对LETF及其交易对手每日再平衡LETF回报的影响。结果表明,日收益率的负(正)自相关将导致乐透基金表现相对较差(良好),而其交易对手表现相对较好(较差)。因此,杠杆和反向ETF在多大程度上具有合法的对冲应用和合理的风险调整回报(扣除交易成本和基金费用)取决于基础回报与弱形式市场效率的一致性。
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来源期刊
CiteScore
1.50
自引率
14.30%
发文量
40
期刊介绍: The Journal of Alternative Investments (JAI) provides you with cutting-edge research and expert analysis on managing investments in hedge funds, private equity, distressed debt, commodities and futures, energy, funds of funds, and other nontraditional assets. JAI is the official publication of the Chartered Alternative Investment Analyst Association (CAIA®). JAI provides you with challenging ideas and practical tools to: •Profit from the growth of hedge funds and alternatives •Determine the optimal mix of traditional and alternative investments •Measure and track portfolio performance •Manage your alternative investment portfolio with proven risk management practices
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