TITLE:
How Would Leveraged Exchange-Traded Funds Perform in Chinese A-Share Market?
AUTHORS:
Yizhao Huang, Ying Yuan, Hongfei Tang
KEYWORDS:
Leveraged Exchange-Traded Funds (LETFs), Fund Performance, LETF Pricing, Chinese A-Share Market
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.12 No.3,
August
15,
2022
ABSTRACT: This paper examines the performance of Leveraged Exchange-Traded Funds (LETFs) on Chinese A-share indices. We find that bull funds deliver positive average returns and that both the bull and bear Chinese LETFs on average (but less often) exceed the naively expected returns over multiple holding days. Compared to the LETFs on the equity indices of the United States, Chinese bull funds have higher returns over short holding periods, but not over long holding periods. During financial crises, Chinese LETFs suffer more erosion than in normal time and bear funds likely experience positive returns. Lastly, we derive a model to guide investors on when LETFs are likely to perform better or worse than na?ve expectations. We not only reveal the potential performance of Chinese LETFs to market participants and regulators for the first time, but also expand the existing LETF literature by documenting new evidence from the unique A-share market.