Performance Analysis of Leveraged ETFs for Long-Term Investing

Abstract

In this article we present a quantitative analysis of the long term risk and return characteristics of leveraged ETFs, and use it to derive an investment strategy that is based on existing leveraged ETFs, but adjusts the leverage factor over time to the prevailing market environment. We show that this strategy creates alpha in the long run in both absolute terms and from a risk-adjusted perspective, and we complement our technical analysis with long-term backtests.

TOPICS: Exchange-traded funds and applications, simulations, performance measurement, VAR and use of alternative risk measures of trading risk