Solving the Return Deviation Conundrum of Leveraged Exchange-Traded Funds
The large deviation of the actual return of a leveraged exchange-traded fund (LETF) from the leveraged multiple of the underlying index return has drawn considerable attention from investors, regulators, and the financial media. Despite this attention, the sources and fundamental determinants of the LETF return deviation remain unidentified. This study constructs a clear, unified, objective, and executable framework that addresses the behaviors, sources, and determinants of the LETF compounding and noncompounding deviations. Our theoretical predictions and empirical results hold the promise of guiding investors, regulators, financial advisors, and portfolio managers toward a thorough understanding of the return behavior of LETFs.
Year of publication: |
2013
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Authors: | Tang, Hongfei ; Xu, Xiaoqing Eleanor |
Published in: |
Journal of Financial and Quantitative Analysis. - Cambridge University Press. - Vol. 48.2013, 01, p. 309-342
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Publisher: |
Cambridge University Press |
Description of contents: | Abstract [journals.cambridge.org] |
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