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Commodity leveraged ETFs: Tracking errors, volatility decay and trading strategies

Commodity exchange-traded funds (ETFs) and their leveraged counterparts are a significant part of the growing ETF market. Kevin Guo and Tim Leung examine their tracking performance, with a focus on the phenomena of volatility decay and realised effective fee. A static long-volatility trading strategy is also studied

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    • Kevin Guo and Tim Leung
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The advent of commodity exchange-traded funds (ETFs) has provided both institutional and retail investors with new ways to gain exposure to a wide array of commodities, including precious metals, agricultural products, and oil and gas. All commodity ETFs are traded on exchanges like stocks, and many have very high liquidity. For example, the SPDR Gold Trust ETF (GLD), which tracks the daily London gold spot price, is the most traded commodity ETF, with an average trading volume of 8 million

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