Worcester Polytechnic Institute Electronic Theses and Dissertations Collection

Title page for ETD etd-111609-083627

Document Typethesis
Author NamePosterro, Barry John
TitleExplorations of Trading Strategies for Leveraged Exchange-Traded Funds
DepartmentMathematical Sciences
  • Marcel Blais, Advisor
  • Keywords
  • exchange-traded fund
  • ETF
  • leverage
  • FAS
  • FAZ
  • bootstrap
  • Date of Presentation/Defense2009-11-16
    Availability unrestricted


    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.

  • Posterro_2009_Financial_Math.pdf

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