RT Journal Article
SR Electronic
T1 Shorting Leveraged ETF Pairs
JF The Journal of Trading
FD Institutional Investor Journals
SP 69
OP 79
DO 10.3905/jot.2018.13.2.069
VO 13
IS 2
A1 Hessel, Christopher
A1 Nam, Jouahn
A1 Wang, Jun
A1 Xing, Cunyu
A1 Zhang, Ge
YR 2018
UL http://jot.iijournals.com/content/13/2/69.abstract
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.