TY  - JOUR
AB  - Purpose– The purpose of this study is to understand the tracking errors of leveraged exchange-traded funds (LETFs) on gold and demonstrate improved tracking performance by dynamic portfolios of gold futures. Design/methodology/approach– The author formulates and solves a constrained quadratic minimization problem to construct static replicating portfolios of both leveraged and unleveraged benchmarks in gold; a dynamic constant leveraged portfolio using gold futures is used to track the path of the leveraged gold benchmark. Findings– The results suggest that market-traded LETFs do not track a leveraged position in gold effectively over a long horizon, and the dynamic leveraged futures portfolio achieves lower tracking errors over multiple years. Research limitations/implications– The research informs us that investors should consider alternative portfolios with gold futures, rather than holding a leveraged gold exchange-traded funds to achieve a desired leveraged exposure in spot gold. Originality/value– The main contribution of the study is the use of gold futures to dynamically replicate a gold benchmark with any given leverage ratio and the detailed comparison of the tracking performance of LETFs versus optimal static and dynamic futures portfolios.
VL  - 32
IS  - 3
SN  - 1086-7376
DO  - 10.1108/SEF-01-2015-0009
UR  - https://doi.org/10.1108/SEF-01-2015-0009
AU  - Leung Tim
AU  - Ward Brian
PY  - 2015
Y1  - 2015/01/01
TI  - The golden target: analyzing the tracking performance of leveraged gold ETFs
T2  - Studies in Economics and Finance
PB  - Emerald Group Publishing Limited
SP  - 278
EP  - 297
Y2  - 2024/04/25
ER  -