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Long-term performance of European leveraged and inverse ETF

Ravez, Emile
(2023)

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RAVEZEmile-Memoire.pdf
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Details

Supervisors
D'Hondt, Catherine
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
Leveraged ETFs attracted a lot of attention when they were launched in 2006. In addition, the question of the holding period for this type of financial instrument quickly became the subject of debate. This paper analyzes the performance of LETFs based on European indices over a long-term holding period. Studies on LETFs have shown that the performance of this type of instrument decreases as the holding period increases. Numerous studies have shown that the best measure of performance for this type of financial instrument is the tracking error. The compounding effect caused by the daily rebalancing of LETFs has often been cited in the literature as the reason for the underperformance of LETFs for holding periods longer than one month. The results of this Master thesis show that LETFs based on European indices tend to underperform their American counterparts, mainly due to the management effect and the financing effect.