Leveraged exchange-traded funds (leveraged ETFs) are innovative financial products which are designed to amplify or invert the exposure of investors to a reference benchmark index. The first wave of leveraged ETFs was introduced by ProShares in June 2006. Since then, the market for leveraged ETF expanded tremendously; there are now over 250 leveraged ETFs, managing more than $ 30 billion of assets. Nowadays, there exist leveraged ETFs with leverage ratio equal to 2 or 3—bull leveraged ETFs—which are designed to deliver, on a daily basis, twice or three times the underlying index daily return and leveraged ETFs with leverage ratio equal to ?1, ?2 or?3—bear leveraged ETFs—which deliver, respectively, the inverse, twice the inverse or three times the inverse of the benchmark’s daily return. The sharp increase in the number of existing leveraged ETFs and the size of their assets under management, documented in Tang and Xu (2011, TableA2), reflect the growing popularity of this financial innovation, which was considered as an easy and inexpensive way to build leveraged positions without using options or margin.
展开▼
