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Levered and Inverse Exchange-Traded Products: Blessing or Curse?

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  • Colby J. Pessina
  • Robert E. Whaley

Abstract

Levered and inverse exchange-trade products (ETPs) are designed to provide geared long and short exposures to the daily returns of various benchmark indexes. The benchmarks may be any reference index, but the popular ones are indexes of stocks, bonds, commodities, and volatility. The problem with these products is that they are not generally well understood, particularly those with futures-based benchmarks. Levered and inverse ETPs are neither suitable buy-and-hold investments nor effective hedging tools. They are unstable and exist only as mechanisms for placing short-term directional bets. Levered and inverse products are not, and cannot be, effective investment management tools.Disclosure: The authors report no conflicts of interest. Editor’s Note: Submitted 22 April 2020Accepted 23 September 2020 by Stephen J. BrownThis article was externally reviewed using our double-blind peer-review process. When the article was accepted for publication, the authors thanked the reviewers in their acknowledgments. David Chambers and Fanesca Young were the reviewers for this article.

Suggested Citation

  • Colby J. Pessina & Robert E. Whaley, 2021. "Levered and Inverse Exchange-Traded Products: Blessing or Curse?," Financial Analysts Journal, Taylor & Francis Journals, vol. 77(1), pages 10-29, January.
    • Handle: RePEc:taf:ufajxx:v:77:y:2021:i:1:p:10-29
    DOI: 10.1080/0015198X.2020.1830660
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