First of all, the market has not been exactly “up-up-up.” There has been massive volatility and drawdowns in the last year.
Second, my analysis was from the beginning of 2018 to present. Using that data, the ideal leverage ratio is 2.99x.
Third, the ret/var model put forth in the post assumes a log-normal distribution. The less log-normal the returns are, the less accurate it becomes. Excess kurtosis or skew will definitely affect the accuracy of the model. So the model would probably be fine if the market was up-up-up or down-down-down, I haven’t encountered any periods in which the non-normality of the distribution is so severe that it completely breaks the model.
Second, my analysis was from the beginning of 2018 to present. Using that data, the ideal leverage ratio is 2.99x.
Third, the ret/var model put forth in the post assumes a log-normal distribution. The less log-normal the returns are, the less accurate it becomes. Excess kurtosis or skew will definitely affect the accuracy of the model. So the model would probably be fine if the market was up-up-up or down-down-down, I haven’t encountered any periods in which the non-normality of the distribution is so severe that it completely breaks the model.