Leveraged Investment Products: Monthly Rebalancing Boosts Performance, but Tail Risk Looms

Q4 Economics, Econometrics and Finance
M. Crouse
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引用次数: 4

Abstract

Volatility reduces any investment’s compound rate of return in what is termed volatility drag, a drawback of leveraged investment products (LIPs). In recent years “Version 2.0” LIPs that reset leverage monthly (monthly LIPs) have been created to lessen the impact of drag. We show that monthly LIPs improve returns because markets are less volatile on a monthly timescale. Nevertheless, monthly LIPs remain problematic as buy-and-hold investments because of the risks of large drawdowns and catastrophic losses. We characterize these risks through higher-order moments and identify attributes of LIPs to mitigate these risks to benefit both LIP investors and LIP sponsors. TOPICS: Exchange-traded funds and applications, volatility measures, performance measurement Key Findings • Leveraged investment products (LIPs) that rebalance leverage monthly provide higher returns than the standard LIPs that rebalance daily. Monthly leverage rebalancing reduces volatility drag because markets exhibit lower realized volatility on a monthly timescale. • Monthly LIPs remain problematic as buy-and-hold investments because of the risks of large drawdowns, excess leverage, and catastrophic losses—risks that are captured not by standard mean-variance and simulation analyses but by our model through higher-order moments. • Buy-and-hold investors should focus on monthly LIPs with broad diversification, low volatility, and intramonth leverage rebalancing that avoids outright liquidation in times of market stress. LIP sponsors should emphasize these same qualities in designing their investment products.
杠杆投资产品:月度再平衡提振业绩,但尾部风险凸显
波动性降低了任何投资的复合回报率,即所谓的波动性拖累,这是杠杆投资产品(LIP)的一个缺点。近年来,为了减少阻力的影响,创建了每月重置杠杆率的“2.0版”LIP(每月LIP)。我们发现,每月LIP可以提高回报,因为市场在每月的时间尺度上波动较小。尽管如此,由于存在大额提款和灾难性损失的风险,作为买入和持有投资,每月LIP仍然存在问题。我们通过高阶矩来描述这些风险,并确定LIP的属性,以减轻这些风险,从而使LIP投资者和LIP赞助商都受益。主题:交易所交易基金和应用程序、波动性指标、绩效衡量关键发现•每月重新平衡杠杆的杠杆投资产品(LIP)比每天重新平衡的标准LIP提供更高的回报。月度杠杆再平衡减少了波动阻力,因为市场在月度时间尺度上表现出较低的已实现波动性。•月度LIP作为买入和持有投资仍然存在问题,因为存在大量提款、过度杠杆和灾难性损失的风险——这些风险不是通过标准均值方差和模拟分析捕捉到的,而是通过我们的模型通过高阶矩捕捉到的。•买入和持有投资者应专注于具有广泛多元化、低波动性和月内杠杆再平衡的月度LIP,以避免在市场压力时期彻底清算。LIP赞助商在设计投资产品时应强调这些相同的品质。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
Journal of Index Investing
Journal of Index Investing Economics, Econometrics and Finance-Finance
CiteScore
0.70
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0.00%
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