IDEAS home Printed from https://ideas.repec.org/a/eme/sefpps/v32y2015i3p278-297.html

The golden target: analyzing the tracking performance of leveraged gold ETFs

Author

Listed:
  • Tim Leung
  • Brian Ward

Abstract

Purpose - – The purpose of this study is to understand the tracking errors of leveraged exchange-traded funds (LETFs) on gold and demonstrate improved tracking performance by dynamic portfolios of gold futures. Design/methodology/approach - – The author formulates and solves a constrained quadratic minimization problem to construct static replicating portfolios of both leveraged and unleveraged benchmarks in gold; a dynamic constant leveraged portfolio using gold futures is used to track the path of the leveraged gold benchmark. Findings - – The results suggest that market-traded LETFs do not track a leveraged position in gold effectively over a long horizon, and the dynamic leveraged futures portfolio achieves lower tracking errors over multiple years. Research limitations/implications - – The research informs us that investors should consider alternative portfolios with gold futures, rather than holding a leveraged gold exchange-traded funds to achieve a desired leveraged exposure in spot gold. Originality/value - – The main contribution of the study is the use of gold futures to dynamically replicate a gold benchmark with any given leverage ratio and the detailed comparison of the tracking performance of LETFs versus optimal static and dynamic futures portfolios.

Suggested Citation

  • Tim Leung & Brian Ward, 2015. "The golden target: analyzing the tracking performance of leveraged gold ETFs," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 32(3), pages 278-297, August.
    • Handle: RePEc:eme:sefpps:v:32:y:2015:i:3:p:278-297
    DOI: 10.1108/SEF-01-2015-0009
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/SEF-01-2015-0009/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/SEF-01-2015-0009/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/SEF-01-2015-0009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tim Leung & Raphael Yan, 2019. "A stochastic control approach to managed futures portfolios," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-22, March.
    2. Tim Leung & Brian Ward, 2020. "Tracking VIX with VIX Futures: Portfolio Construction and Performance," World Scientific Book Chapters, in: John B Guerard & William T Ziemba (ed.), HANDBOOK OF APPLIED INVESTMENT RESEARCH, chapter 21, pages 557-596, World Scientific Publishing Co. Pte. Ltd..
    3. Tim Leung & Hyungbin Park, 2017. "LONG-TERM GROWTH RATE OF EXPECTED UTILITY FOR LEVERAGED ETFs: MARTINGALE EXTRACTION APPROACH," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(06), pages 1-33, September.
    4. Gregor Dorfleitner & Anna Gerl & Johannes Gerer, 2018. "The pricing efficiency of exchange-traded commodities," Review of Managerial Science, Springer, vol. 12(1), pages 255-284, January.
    5. Guo, Kevin & Leung, Tim, 2017. "Understanding the non-convergence of agricultural futures via stochastic storage costs and timing options," Journal of Commodity Markets, Elsevier, vol. 6(C), pages 32-49.
    6. Nian Yao, 2018. "Optimal leverage ratio estimate of various models for leveraged ETFs to exceed a target: Probability estimates of large deviations," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-37, June.
    7. Bahman Angoshtari & Tim Leung, 2019. "Optimal dynamic basis trading," Annals of Finance, Springer, vol. 15(3), pages 307-335, September.
    8. Kevin Guo & Tim Leung & Brian Ward, 2019. "How to mine gold without digging," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-30, March.
    9. Tim Leung & Brian Ward, 2018. "Dynamic Index Tracking and Risk Exposure Control Using Derivatives," Applied Mathematical Finance, Taylor & Francis Journals, vol. 25(2), pages 180-212, March.
    10. Subhashis Nandy, 2016. "Empirical Observations on the Tracking Errors and the Risk-Adjusted Returns of REIT-Based Exchange Traded Funds," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(9), pages 1-63, August.
    11. Xiaodong Chen & Tim Leung & Yang Zhou, 2022. "Constrained dynamic futures portfolios with stochastic basis," Annals of Finance, Springer, vol. 18(1), pages 1-33, March.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:sefpps:v:32:y:2015:i:3:p:278-297. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.