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Levered Exchange-Traded Products: Theory and Practice


  • Mulvey, John

    () (Princeton University)

  • Nadbielny, Thomas

    () (Benchmark Advisors, LLC)

  • Kim, Woo Chang

    () (KAIST)


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.

Suggested Citation

  • Mulvey, John & Nadbielny, Thomas & Kim, Woo Chang, 2013. "Levered Exchange-Traded Products: Theory and Practice," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(2), pages 105-118.
  • Handle: RePEc:ris:jofipe:0016

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    References listed on IDEAS

    1. Adrian, T. & Shin, H S., 2009. "The shadow banking system: implications for fi nancial regulation," Financial Stability Review, Banque de France, issue 13, pages 1-10, September.
    2. Andrew Sheng, 2011. "Central Banking in an Era of Quantitative Easing," Economics Working Paper Archive wp_684, Levy Economics Institute.
    3. Thorvald Grung Moe, 2012. "Shadow Banking and the Limits of Central Bank Liquidity Support: How to Achieve a Better Balance between Global and Official Liquidity," Economics Working Paper Archive wp_712, Levy Economics Institute.
    4. Alan Moreira & Alexi Savov, 2014. "The Macroeconomics of Shadow Banking," NBER Working Papers 20335, National Bureau of Economic Research, Inc.
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    More about this item


    Exchange-traded products; Leverage; Rebalancing rules;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions


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