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Levered Exchange-Traded Products: Theory and Practice

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Author Info

  • Mulvey, John

    ()
    (Princeton University)

  • Nadbielny, Thomas

    ()
    (Benchmark Advisors, LLC)

  • Kim, Woo Chang

    ()
    (KAIST)

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    Abstract

    When levered exchange products were first introduced, they were heralded as a convenient mechanism for investors to achieve a better result than with more traditional borrowing and leveraging trategies. This article shows that rebalancing decisions have a major impact on the performance of levered and inverse strategies, especially during periods of high volatility. It considers the actual benefits of levered exchangetraded products, which do not always provide returns in line with their anticipated performance, and discusses the best rebalancing approaches. It demonstrates, through empirical testing, situations when daily rebalance leveraging is likely to outperform term borrowing leverage, and vice-versa.

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    Bibliographic Info

    Article provided by EY Global FS Institute in its journal Journal of Financial Perspectives.

    Volume (Year): 1 (2013)
    Issue (Month): 2 ()
    Pages: 105-118

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    Handle: RePEc:ris:jofipe:0016

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    Related research

    Keywords: Exchange-traded products; Leverage; Rebalancing rules;

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