Ron Rowland

Do Inverse ETFs Do What They're Supposed To?

The Elston and Choi paper is flawed. Although they ackowledge that leveraged and inverse funds seek to track index performance (altered by a daily factor) on a daily basis, their conclusion and table define "implied return" as a factor of the index over a one-year period.

The correct way to define/determine "implied" returns over periods greater than one day would be to compound the daily factored returns.

I am surprised the reviewing body Academy of Accounting and Financial Studies didn't catch this before they published the paper.