I was reading on the pros and cons of shorting an ETF vs buying an inverse ETF on yahoo
I do not understnad this explanation why over hte logner term, shorting is not equivalent to buying an inverse ETF, but over shorter term they are equivalent. Can someone explain the below in lay terms:
From the link:
Inverse ETFs are generally only intended to provide the inverse return on a daily basis. If the Dow Jones Industrial Average ETF (DIA, A-) moves down 5% over a week or a month, the Short Dow 30 ETF (DOG, A) won’t likely be up 5%. Due to compounding returns and losses on an increasing or decreasing ETF price, over the longer-term you can expect some disconnect between gains/losses on a tradition ETF and the losses/gains on the corresponding inverse ETF.
I got confused on this line:Due to compounding returns and losses ....