NYU_Marco Avellaneda

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1、StructuralSlippageofLeveragedETFsDorisDobi∗MarcoAvellaneda∗†September13,2012AbstractThedailyrebalancingofaleveragedexchangetradedfund(LETF)requiresthefundmanagertosystematicallymodifytheamountofindexexposure.Inordertoachievetheinvestmentobjectiveofthef

2、und,managersofLETFsusetotalreturnswapswiththeappropriateleverageratio.Thisdailyrebalancingmayopenthepossibilityoffront-runningandothermarketfrictions.WeconstructedshortingtradesinordertocaptureanyexistingslippageresultingfromthedailyrebalancingofLETFs.

3、Ourdataunequivocallyshowsthatthecumulativeeffectofrebalancingcostscannotbeignored.Forholdingperiodsofoneday,evenafteraccountingforcompoundingcosts,LETFsfailtoperformasexpected.Inordertogainafullunderstandingoftheperformanceofthesetrades,itwascrucialtota

4、keintoaccounttheborrowingratesforshortingLETFs.Wecalculatedthedifferencebetweentheslippageandtheborrowingratesandfoundthatin16outofthe21tradesthemeanvalueofthedifferenceisstrictlypositivewith95percentconfidence.PreciselybecauseLETFshavenegativeexpectedret

5、urnswithrespecttotheirbenchmarkindex,iftheyarenotoffsetbyhighborrowingcosts,thensystematicshortingyieldsanarbitrageopportunity.∗CourantInstituteofMathematicalSciences,251MercerStreet,NewYork,N.Y.10012.e-mail:dobi@cims.nyu.edu†FinanceConceptsSARL,49-51Av

6、enueVictor-Hugo,75116Paris,France.e-mail:avellaneda@courant.nyu.edu1Contents1Introduction32ManagingLETFs;BuyHigh,SellLow43AModelforSlippage84EmpiricalResultsforSlippage95Hard-to-BorrowandEmpiricalResults126Conclusion15AAppendix16A.1TheMechanicsofHedgin

7、gEquation.....................16References1621IntroductionLeveragedExchangeTradedFunds(LETFs)havegainedalotofpopularitysincetheircreationaround2006.AccordingtotrackerIndexUniverse,thereare275leveragedETFswithnearly$33billiondollarsinassets.LeveragedETF

8、sreferenceanunderlyingindexorETFandofferamultipleofthedailyreturnsoftheunderlyingindexminushedgingcostsandmanagementfees.LeveragedETFsbelongtotheclassofactivelymanagedfundsandthedailyrebalancingofaLETFrequiresthefundmanagertosystematical