Download or read book Investigating Long term Short Pairing Strategies for Leveraged Exchange traded Funds Using Machine Learning Techniques written by Elaheh Nikbakht and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Although the literature on leveraged exchange-traded funds (LETFs) concurs with the idea that they are short-term investment tools, recent studies offer some investment strategies for them that are also profitable in the long term. These strategies, however, are typically only tested on a limited number of highly traded LETFs. This study uses different types of LETFs to examine various portfolios with different combinations of bull and bear LETFs, to find the best investment strategy in the long run. It then uses different machine learning techniques to analyze which factors define the best investment strategies, with portfolios being rebalanced on a quarterly and annual basis. The sample of this study consists of 44 pairs of LETFs from 2012 to 2020 that have different underlying assets and leverage levels. The results reveal that short-selling the combination of both bull and bear LETFs does not yield a significant positive return compared to the market, however, the return generated from short-selling a portfolio with only bear ETFs can significantly beat the market, especially when the market is bullish. The quarterly and annual results are consistent and show that short-selling a full bear portfolio is the winning strategy in both of these intervals. Moreover, the results show that as the correlation of LETFs with their underlying index increases, the return of short-selling both bull and bear LETFs decreases. At the same time, an increase in the net asset value of bull LETFs results in an increase in the return of short-selling bull LETFs and a decrease in return of short-selling the bear LETFs.
Download or read book Explorations of Trading Strategies for Leveraged Exchange Traded Funds written by Barry John Posterro and published by . This book was released on 2009 with total page 104 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper describes our work in exploring trading strategies for the leveraged exchange-traded funds, Direxion Daily Financial Bull 3X (FAS) and Direxion Daily Financial Bear 3X (FAZ) over the first three quarters of 2009. Using minute-by-minute stock data we are able to verify the accuracy of these ETFs in regards to their target of the Russell 1000 Financial Index (RIFIN). We are then able to quantify the returns and risks involved with trading strategies that seek to exploit the ETFs objectives, specifically momentum trades, tracking-error discrepancy trades, and a combination of the two strategies we term "discount-and-up." Bootstrap simulation techniques are employed to measure values at risk and conditional tail expectations over 30 day time horizons for each strategy. Lastly, we demonstrate the dangers of traditional buy-and-hold investing with regards to leveraged ETFs.
Download or read book A Machine Learning based Pairs Trading Investment Strategy written by Simão Moraes Sarmento and published by Springer Nature. This book was released on 2020-07-13 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book investigates the application of promising machine learning techniques to address two problems: (i) how to find profitable pairs while constraining the search space and (ii) how to avoid long decline periods due to prolonged divergent pairs. It also proposes the integration of an unsupervised learning algorithm, OPTICS, to handle problem (i), and demonstrates that the suggested technique can outperform the common pairs search methods, achieving an average portfolio Sharpe ratio of 3.79, in comparison to 3.58 and 2.59 obtained using standard approaches. For problem (ii), the authors introduce a forecasting-based trading model capable of reducing the periods of portfolio decline by 75%. However, this comes at the expense of decreasing overall profitability. The authors also test the proposed strategy using an ARMA model, an LSTM and an LSTM encoder-decoder.
Download or read book Markowitz style Quartic Optimization for the Improvement of Leveraged ETF Trading written by Jackson Paul DeWeese and published by . This book was released on 2013 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This paper seeks to unconventionally maximize the volatility of a portfolio through a quartic optimization based on Markowitz's modern portfolio theory, which generally seeks to do exactly the opposite. It shows that through this method, a daily leveraged exchange traded fund (ETF) strategy investigated by Posterro can be significantly improved upon in terms of its Sharpe ratio. The original strategy seeks to use a combination of momentum trading and tracking error in leveraged ETFs to trade during the last half an hour of the trading day, but it suffers in a low volatility market. By maximizing the volatility to take better advantage of tracking error and momentum, this problem is addressed by both increasing the mean daily return and significantly decreasing the variance of the strategy's daily returns. GARCH forecasting is also implemented to assist in the maximization of the daily portfolios' variances, though this does not prove to make a statistically significant difference in the strategy's performance.
Download or read book Getting Investment Leverage in the Markets written by Tom Lydon and published by . This book was released on 2010 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This Element is an excerpt from The ETF Trend Following Playbook: Profiting from Trends in Bull or Bear Markets with Exchange Traded Funds (ISBN: 9780137029013) by Tom Lydon. Why go "short"--And how to use leveraged ETFs to do it more effectively"--Resource description page.
Download or read book Leveraged Exchange Traded Funds written by Tim Leung and published by Springer. This book was released on 2016-03-08 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides an analysis, under both discrete-time and continuous-time frameworks, on the price dynamics of leveraged exchange-traded funds (LETFs), with emphasis on the roles of leverage ratio, realized volatility, investment horizon, and tracking errors. This study provides new insights on the risks associated with LETFs. It also leads to the discussion of new risk management concepts, such as admissible leverage ratios and admissible risk horizon, as well as the mathematical and empirical analyses of several trading strategies, including static portfolios, pairs trading, and stop-loss strategies involving ETFs and LETFs. The final part of the book addresses the pricing of options written on LETFs. Since different LETFs are designed to track the same reference index, these funds and their associated options share very similar sources of randomness. The authors provide a no-arbitrage pricing approach that consistently value options on LETFs with different leverage ratios with stochastic volatility and jumps in the reference index. Their results are useful for market making of these options, and for identifying price discrepancies across the LETF options markets. As the market of leveraged exchange-traded products become a sizeable connected part of the financial market, it is crucial to better understand its feedback effect and broader market impact. This is important not only for individual and institutional investors, but also for regulators.
Download or read book Analysis of Proper Investment Strategy in Leveraged Exchange Traded Funds written by Scott M. Horowitz and published by . This book was released on 2009 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Leveraged Exchange Traded Funds written by William Trainor and published by . This book was released on 2018 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leveraged exchange-traded funds (LETFs) are designed to return a daily multiple ranging from -3.0x to 3.0x of an underlying index. Recently, both ForceShares and ProShares have proposed /-4.0x products. However, realized leverage tends to decrease with volatility, resulting in the paradoxical outcome that less leverage can be better, even when the market moves in the direction the investor predicts. This study shows that, under average market conditions, within twenty-one trading days a 4.0x will have a median return approximately equal to a 3.0x and within one year, it will have a median return comparable to only a 2.0x. Thus, the higher leverage of a 4.0x will deteriorate quickly and may provide returns less than its lower LETF counterparts. This result is even more pronounced for inverse funds. To counter the idea that LETFs are for short-term trading only, this study also demonstrates a successful long-term strategy for holding LETFs by taking advantage of their derivative type characteristics. A fixed exposure to an index can be attained with smaller allocations to LETFs freeing up wealth that can earn additional return resulting in overall outperformance.
Download or read book Modeling the Re Balancing Slippage of Leveraged Exchange Traded Funds written by Lakshithe Wagalath and published by . This book was released on 2013 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leveraged exchange-traded funds are designed to track a multiple of the daily return of an underlying benchmark index. In order to keep a fixed exposure to the benchmark index, leveraged ETFs have to re-balance their positions everyday, generating a structural 're-balancing slippage' which has been documented in several empirical studies.This paper quantifies the re-balancing slippage of leveraged ETFs by developing a tractable model for the dynamics of leveraged funds, which takes into account the impact of active management by leveraged ETFs. We characterize the re-balancing strategy of the leveraged fund and its impact on the value of the leveraged ETF and we model its dynamics in discrete-time. We show that the re-balancing impact systematically diminishes the daily return of the leveraged ETF and that, over a holding period of more than one day, leveraged ETFs develop a tracking-error which can be decomposed between a compounding deviation - that has already been documented and quantified in previous studies - and a re-balancing deviation. The study of the continuous-time limit of the multi-period model allows us to obtain analytical formulas for the re-balancing slippage and the tracking-error of the leveraged ETF. Our theoretical results are consistent with empirical studies which find that tracking-error and re-balancing impact are larger in periods of high volatility and for leveraged ETFs with negative leverage ratios.
Download or read book Regime switching Advantage in Statistical Arbitrage Strategies Conditioned on Time Series Momentum and Volatility in Leveraged Exchange Traded Funds written by Nisheeth Saini and published by . This book was released on 2019 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: The phenomena of volatility decay (also known as time decay) and path dependence in leveraged exchange traded funds (ETF) markets have been documented in the literature. This dissertation examined whether it is possible to exploit these market conditions for leveraged ETF (LETF) trading using statistical arbitrage (StatArb) strategies. The study proposed a regime switching model tailored for LETF markets to predict volatility and time-series momentum in the behavior of the underlying indexes of the LETFs. The study then used this model to test short pair trading strategies on a varied set of commodity LETFs to see if theoretical intuitions informed by these analyses were empirically supported by data. The study also introduced the concept of lag relative expected volatility (LREV) based on inductive learning in a binary classification framework to model upward shocks in expected volatility on any given trading day. The results of this study showed that an active short pair trading strategy in commodity LETFs, conditioned on momentum and volatility, outperforms an unconditioned and passive sell-and-hold StatArb trading strategy on a risk-adjusted basis. This outperformance was, however, found to be present in Sortino ratios only. The study did not find any evidence of outperformance for the active trading strategy in either Sharpe ratios or absolute returns. The results also provided further evidence that LETFs tracking equity indexes are poor candidates for active StatArb trading strategies due to low volatility. Further, the results also indicated that any incremental deterioration in the efficiency of LETF products in rapidly fluctuating markets appears to be mostly attributable to systemic jumps in the implied volatility and less due to any incremental inefficiency in their daily rebalancing process. This finding may be of interest to the regulators. Lastly, the study also provided evidence from the LETF markets for an inverse relationship between volatility and momentum, as established in some recent studies.
Download or read book A Guide to Exchange traded Funds and Indexing Innovations written by and published by . This book was released on 2009 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Portfolio of Leveraged Exchange Traded Funds written by William Trainor and published by . This book was released on 2018 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leveraged exchange traded funds (LETFs) are marketed as short-term trading vehicles that magnify the daily returns of an underlying index. With the proliferation of LETFs over the last 10 years, a diversified portfolio that mimics the returns of a 100% investment can be created using only a fraction of the investor's wealth. Results suggest a portfolio created with LETFs outperforms a portfolio using traditional ETFs by approximately 0.6% to 1.4% annually by investing the excess wealth in a diversified or short to mid-duration bond portfolio. Downside risk is reduced using LETFs because the majority of the LETF portfolio is invested in a relatively safe bond fund.
Download or read book Leveraged Exchange Traded Funds and Their Impact on the U S Stock Market written by Benjamin Reisewitz and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Market Muscle written by Thomas Peterson and published by . This book was released on 2012-12 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Author and licensed financial advisor Thomas Peterson reveals Wall Street's hidden secret -- how to make money safely and lucratively using the covered call option with exchanged traded funds and protective puts. He presents a basic overview on options, exchange traded funds, and protective puts. Includes end-of-chapter quizzes.
Download or read book Leveraged Funds written by Paolo Guasoni and published by . This book was released on 2019 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leveraged and inverse exchange-traded funds seek daily returns equal to fixed multiples of indexes' returns. Trading costs implied by frequent adjustments of funds' portfolios create a tension between tracking error, reflecting short-term correlation with the index, and excess return, the long-term deviation from the leveraged index' performance. With proportional costs, the optimal replication policy is robust to the index' dynamics. Overall fund performance is summarized by the implied spread, the product of tracking error and excess return, rescaled for leverage and volatility. The implied spread is insensitive to risk-premia and enables comparisons of funds tracking different factors of an index.
Download or read book Algorithmic Trading 2021 The Best Guide to Developing Winning Trading Strategies Using Financial Machine Learning written by Collane LV and published by . This book was released on 2021-11-07 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: For decades, stock trading was locked behind the door of wealth and exclusivity. When that door opened with the introduction of online trading platforms and discount brokers, a flood of new investors and traders entered the market exchange. In many ways, the introduction of discount brokers and online trading platforms was a breath of fresh air. It opened up the market and boosted our global economy. It also gave everyone with a bit of cash and an internet connection the opportunity to grow their wealth. However, when you're just starting out in trading and investment, the world of financial investments can be quite overwhelming, especially if you're starting without much guidance, which is the case with discount brokers. After all, as a newbie, how do you know what to invest in, how to invest, and when to invest? Well, when embarking on any new venture, the first thing most of us tend to do is jump into some research. In the time before Google, research often meant pouring over large texts and getting yourself dusty in the library. We're glad to say that those days are long gone. With increasingly sophisticated technological advancements, trading no longer needs to be a daunting task. These days, there are paper trading accounts and online webinars, all of which are aimed at helping beginners land on their feet. When you've traversed the financial markets for a bit, you'll be exposed to a plethora of trading techniques, methods, and strategies that you can use when interacting with financial markets. These methods and strategies come in all shapes and sizes and are suited toward every level of expertise there is. If you're a bit more tech-savvy and are looking to jump into trading and investment, algorithmic trading might be the perfect way to navigate the financial market. If you're reading this book, chances are pretty high that you've heard about algorithmic trading and are interested in exploring it as a possible avenue of trade and investment. But, as with all things concerning finance, you know that you should be doing your research before jumping in. That's where we come in. This book is aimed at discussing the basics of algorithmic trading and helping you use algo trading as a means of managing your investment portfolio. We're here to answer questions like whether algo trading is better than manual trading and if algo trading even works. In short, this book is a crash course on algorithmic trading and covers things like the basics of algo trading, its uses, risks and benefits, and how to get started
Download or read book AI and Financial Markets written by Shigeyuki Hamori and published by MDPI. This book was released on 2020-07-01 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt: Artificial intelligence (AI) is regarded as the science and technology for producing an intelligent machine, particularly, an intelligent computer program. Machine learning is an approach to realizing AI comprising a collection of statistical algorithms, of which deep learning is one such example. Due to the rapid development of computer technology, AI has been actively explored for a variety of academic and practical purposes in the context of financial markets. This book focuses on the broad topic of “AI and Financial Markets”, and includes novel research associated with this topic. The book includes contributions on the application of machine learning, agent-based artificial market simulation, and other related skills to the analysis of various aspects of financial markets.
