PT - JOURNAL ARTICLE
AU - Hessel, Christopher
AU - Nam, Jouahn
AU - Wang, Jun
AU - Xing, Cunyu
AU - Zhang, Ge
TI - Shorting Leveraged ETF Pairs
DP - 2018 Mar 31
TA - The Journal of Trading
PG - 69--79
VI - 13
IP - 2
4099 - http://jot.iijournals.com/content/13/2/69.short
4100 - http://jot.iijournals.com/content/13/2/69.full
AB - This article examines the strategy of shorting a pair of leveraged ETFs and inverse leveraged ETFs of the same index. The profitability of this strategy does not depend on the direction of the underlying benchmark. The authors derive an approximation formula to show that the expected return is high when the weighted sum of various orders of autocorrelations is negative and the volatility of the underlying index is high. They then study the trading strategy in six markets and show that it can generate mean monthly returns of over 1% in four markets. The returns can be further enhanced if they exploit the persistence of the volatility and start the shorting pair strategy when the observed volatility is high.