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Investment performance of shorted leveraged ETF pairs

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  • Xinxin Jiang
  • Stanley Peterburgsky

Abstract

We analyze investment strategies involving triple-leveraged and inverse triple-leveraged ETF pairs by simulating daily returns over a 48-year period. Our results show that many such strategies significantly outperform the S&P 500 on a risk-adjusted basis. For example, when shorting the bear triple-leveraged ETF and the bull triple-leveraged ETF in a 2:1 proportion (while going long Treasuries), we find that the average annual Sharpe ratio is more than four times higher than for the S&P 500 and that the strategy outperforms the S&P 500 in 43 of the 48 years. Our results are robust to variations in bear/bull proportions, rebalance thresholds, and underlying parameters.

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  • Xinxin Jiang & Stanley Peterburgsky, 2017. "Investment performance of shorted leveraged ETF pairs," Applied Economics, Taylor & Francis Journals, vol. 49(44), pages 4410-4427, September.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:44:p:4410-4427
    DOI: 10.1080/00036846.2017.1282149
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    Cited by:

    1. Ramesh Adhikari & Humnath Panta & M. Kabir Hassan, 2020. "Performance of ProShares Triple-Leveraged Equity ETFs," Capital Markets Review, Malaysian Finance Association, vol. 28(2), pages 1-18.

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