DOES LEVERAGE PAY OFF? THE CASE OF EQUITY-LEVERAGED MUTUAL FUNDS

In this study we examine the risk-adjusted performance of a sample of U.S.-based enhanced index mutual funds that use leverage with the goal of generating return-multiples of its benchmark. We study equity-leverage funds that follow four major market indices, that is the Dow Jones Industrial Average (Dow), the NASDAQ-100, the Russell 2000 and the Standard and Poor's 500. We consider two model specifications and different market conditions. The evidence shows that these funds fail to outperform. This is particularly true during Bull markets.