Stevoswing
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I'm not sure if I'm asking my question to the right forum, but hopefully someone may be able to help.
On the surface an inverse ETF index tracker would appear a reasonable vehicle for shorting in a bear market. But then I read in wikipedia about "volatility loss", http://en.wikipedia.org/wiki/Inverse_exchange-traded_fund
The historical example shows how in a week in late 2008, when the iShares Dow Jones US Financial was essentially flat, the ProShares UltraShort Financials (a double-short ETF) lost 13.2% because the market dropped 15.7% before recovering.
I can follow the maths of the hypothetical example, but my question is what is the underlying reason for this? I would have thought that since inverse ETFs "work by using short selling, trading derivatives such as futures contracts, and other leveraged investment techniques", then such an effect could be avoided.
If you think I should post this to a different forum, please advise.
Thanks
Steve
On the surface an inverse ETF index tracker would appear a reasonable vehicle for shorting in a bear market. But then I read in wikipedia about "volatility loss", http://en.wikipedia.org/wiki/Inverse_exchange-traded_fund
The historical example shows how in a week in late 2008, when the iShares Dow Jones US Financial was essentially flat, the ProShares UltraShort Financials (a double-short ETF) lost 13.2% because the market dropped 15.7% before recovering.
I can follow the maths of the hypothetical example, but my question is what is the underlying reason for this? I would have thought that since inverse ETFs "work by using short selling, trading derivatives such as futures contracts, and other leveraged investment techniques", then such an effect could be avoided.
If you think I should post this to a different forum, please advise.
Thanks
Steve
