Abstract
Using the longest history of a U.S. equity market index, this paper simulates the return deviation and multiple deviation for Leveraged Exchange-Traded Products (LETPs) with different rebalancing frequencies, including daily, monthly, annually, and every five years, over various holding periods. We find that the general perception that daily-rebalanced LETPs are not suitable for long-term strategies is not substantiated. Advancing the analysis, we construct a comprehensive framework that determines the deviation of an LETP’s effective multiple from its stated product multiple under various rebalancing frequencies and holding period scenarios. The empirical framework and results from this paper hold the promise of guiding regulators, policy makers, and investors in their understanding of the tracking performance of LETPs.
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