Leveraged exchange-traded funds (ETFs) are relatively new to the world of investments but have become increasingly popular to aggressive investors. While a regular ETF tracks the value of a specific index of stocks, a leveraged ETF attempts to achieve a multiple of the return of the underlying index on a daily basis. This multiple can be positive in the case of bull ETFs or negative in the case of bear (or inverse) ETFs. To accomplish these objectives, leveraged and inverse funds pursue a range of investment strategies through the use of swaps, futures contracts, options and other derivative instruments. Due to the effect of compounding, operating expenses and daily resets, not to mention tracking errors, the performance of leveraged funds over longer periods of time can differ substantially from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time. Such performance deviations are often quite meaningful and unexpected over the long run. This paper evaluates the nature and statistical properties of leveraged and inverse ETFs and in particular the long-run impacts as compared to their underlying indexes. It also provides an empirical assessment a sample of such ETFs
