Alpha Dark Horse or Trojan Horse—A Comprehensive Analysis of Leverage Financial Products

Abstract

This paper provides a comprehensive analysis of leveraged Exchange-Traded Funds (ETFs) and Exchange-Traded Notes (ETNs), financial instruments that have grown significantly in popularity and market presence since their introduction in the early 2000s. Using data from 2020–2024, we examine the performance characteristics, risk profiles, and potential market impacts of these complex investment vehicles across different asset categories and market conditions. Our analysis reveals significant volatility drag and tracking errors that increase with holding period length and underlying asset volatility. We find that leveraged ETFs tracking technology and semiconductor indices experience the most extreme performance patterns, while fixed-income leveraged ETFs show more moderate but still significant decay effects. The paper demonstrates that these products generally fail to deliver their stated multiple of underlying index returns over periods longer than their daily rebalancing horizon, with the divergence increasing during periods of high market volatility. These findings have important implications for individual investors, financial advisors, and regulators concerned with market stability and investor protection.

The authors' abstract, as published at the source. Journal of risk and financial management, 2026 · DOI ↗