IDEAS home Printed from https://ideas.repec.org/a/pal/assmgt/v10y2009i4d10.1057_jam.2009.13.html
   My bibliography  Save this article

Price volatility and tracking ability of ETFs

Author

Listed:
  • Jack W Aber

    (School of Management, Boston University)

  • Dan Li
  • Luc Can

Abstract

In this paper, we examine the price volatility and tracking ability of four iShares™ exchange-traded funds (ETFs). We use three measures: the premium and discount position, daily return, and tracking error, compared with conventional index mutual funds tracking the same index. Our results indicate that the ETFs are more likely to trade at a premium than at a discount, with comparatively large daily price fluctuations; and that both fund types have approximately the same degree of comovement with their benchmarks, but differ slightly in their tracking ability. On average, the Vanguard™ conventional index funds beat their corresponding iShares™ competitors in terms of tracking error.

Suggested Citation

  • Jack W Aber & Dan Li & Luc Can, 2009. "Price volatility and tracking ability of ETFs," Journal of Asset Management, Palgrave Macmillan, vol. 10(4), pages 210-221, October.
    • Handle: RePEc:pal:assmgt:v:10:y:2009:i:4:d:10.1057_jam.2009.13
    DOI: 10.1057/jam.2009.13
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/jam.2009.13
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1057/jam.2009.13?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Timothy Jares & Angeline Lavin, 2004. "Japan and Hong Kong Exchange-Traded Funds (ETFs): Discounts, Returns, and Trading Strategies," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(1), pages 57-69, February.
    2. Delcoure, Natalya & Zhong, Maosen, 2007. "On the premiums of iShares," Journal of Empirical Finance, Elsevier, vol. 14(2), pages 168-195, March.
    3. Edwin J. Elton, 2002. "Spiders: Where Are the Bugs?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 453-472, July.
    4. James M. Poterba & John B. Shoven, 2002. "Exchange-Traded Funds: A New Investment Option for Taxable Investors," American Economic Review, American Economic Association, vol. 92(2), pages 422-427, May.
    5. Rudolf, Markus & Wolter, Hans-Jurgen & Zimmermann, Heinz, 1999. "A linear model for tracking error minimization," Journal of Banking & Finance, Elsevier, vol. 23(1), pages 85-103, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shank, Corey A. & Vianna, Andre C., 2016. "Are US-Dollar-Hedged-ETF investors aggressive on exchange rates? A panel VAR approach," Research in International Business and Finance, Elsevier, vol. 38(C), pages 430-438.
    2. Damien KUNJAL, 2023. "The Role of Investor Attention in ETF Liquidity," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 7(2), pages 45-64.
    3. Justice Matarutse, 2014. "Volatility characteristics of stocks underlying Exchange Traded Funds in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 6(10), pages 829-839.
    4. Kent T. Saunders, 2018. "Analysis of International ETF Tracking Error in Country-Specific Funds," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(2), pages 151-160, June.
    5. Mohammad Sharifzadeh & Simin Hojat, 2012. "An analytical performance comparison of exchange-traded funds with index funds: 2002–2010," Journal of Asset Management, Palgrave Macmillan, vol. 13(3), pages 196-209, June.
    6. Priya Malhotra & Pankaj Sinha, 2023. "Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance," Metamorphosis: A Journal of Management Research, , vol. 22(1), pages 38-54, June.
    7. L. Alamelu & Nisha Goyal, 2023. "Investment Performance and Tracking Efficiency of Indian Equity Exchange Traded Funds," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 165-188, March.
    8. Gregor Dorfleitner & Anna Gerl & Johannes Gerer, 2018. "The pricing efficiency of exchange-traded commodities," Review of Managerial Science, Springer, vol. 12(1), pages 255-284, January.
    9. Marszk, Adam & Lechman, Ewa, 2021. "Reshaping financial systems: The role of ICT in the diffusion of financial innovations – Recent evidence from European countries," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    10. Mahan Tahvildari, 2021. "Forward indifference valuation and hedging of basis risk under partial information," Papers 2101.00251, arXiv.org.
    11. Stewart, Shamar L. & Massa, Olga Isengildina & Hassman, Colburn & Leon, Maximo de, 2023. "ETP tracking of U.S. agricultural and energy markets," Journal of Commodity Markets, Elsevier, vol. 31(C).
    12. Burchan Sakarya & Aykut Ekinci, 2020. "Exchange-traded funds and FX volatility: Evidence from Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 20(4), pages 205-211.
    13. Mathew Mallika & M. M. Sulphey, 2018. "Gold Exchange Traded Fund - Price Discovery and Performance Analysis," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 65(4), pages 477-495, December.
    14. Chunpeng Yang & Jun Chi, 2023. "Investor sentiment and volatility of exchange‐traded funds: Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 668-680, January.
    15. Damien Kunjal & Faeezah Peerbhai & Paul-Francois Muzindutsi, 2022. "Political, economic, and financial country risks and the volatility of the South African Exchange Traded Fund market: A GARCH-MIDAS approach," Risk Management, Palgrave Macmillan, vol. 24(3), pages 236-258, September.
    16. Patrick Kuok-Kun Chu, 2016. "Analysis and Forecast of Tracking Performance of Hong Kong Exchange-Traded Funds: Evidence from Tracker Fund and X iShares A50," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-26, December.
    17. Mohammad Sharifzadeh & Simin Hojat, 2011. "An analytical performance comparison of exchanged traded funds with index funds: 2002-2010," Papers 1111.0389, arXiv.org.
    18. Tseng, Tseng-Chan & Lee, Chien-Chiang & Chen, Mei-Ping, 2015. "Volatility forecast of country ETF: The sequential information arrival hypothesis," Economic Modelling, Elsevier, vol. 47(C), pages 228-234.
    19. Prabhdeep Kaur & Jaspal Singh & Sidharath Seth, 2021. "Investigating the Dynamics of Exchange Traded Funds Across the Bear and Bull Markets: Evidence from Indian Equity ETFs," Vision, , vol. 25(3), pages 350-360, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gregor Dorfleitner & Anna Gerl & Johannes Gerer, 2018. "The pricing efficiency of exchange-traded commodities," Review of Managerial Science, Springer, vol. 12(1), pages 255-284, January.
    2. R. Shanmugham & Zabiulla, 2012. "Pricing Efficiency of Nifty BeES in Bullish and Bearish Markets," Global Business Review, International Management Institute, vol. 13(1), pages 109-121, February.
    3. Levy, Ariel & Lieberman, Offer, 2013. "Overreaction of country ETFs to US market returns: Intraday vs. daily horizons and the role of synchronized trading," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1412-1421.
    4. Damien Kunjal & Faeezah Peerbhai & Paul-Francois Muzindutsi, 2021. "The performance of South African exchange traded funds under changing market conditions," Journal of Asset Management, Palgrave Macmillan, vol. 22(5), pages 350-359, September.
    5. Shin, Sangheon & Soydemir, Gökçe, 2010. "Exchange-traded funds, persistence in tracking errors and information dissemination," Journal of Multinational Financial Management, Elsevier, vol. 20(4-5), pages 214-234, December.
    6. Perera, Devmali & Białkowski, Jędrzej & Bohl, Martin T., 2022. "Is the tracking error time-varying? Evidence from agricultural ETCs," Research in International Business and Finance, Elsevier, vol. 63(C).
    7. Hilliard, Jitka, 2014. "Premiums and discounts in ETFs: An analysis of the arbitrage mechanism in domestic and international funds," Global Finance Journal, Elsevier, vol. 25(2), pages 90-107.
    8. Devmali Perera & Jędrzej Białkowski & Martin T. Bohl, 2022. "Is the Tracking Error Time-Varying? Evidence from Agricultural ETCs," Working Papers in Economics 22/13, University of Canterbury, Department of Economics and Finance.
    9. David Blitz & Joop Huij & Laurens Swinkels, 2012. "The Performance of European Index Funds and Exchange†Traded Funds," European Financial Management, European Financial Management Association, vol. 18(4), pages 649-662, September.
    10. Elton, Edwin J. & Gruber, Martin J., 2013. "Mutual Funds," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1011-1061, Elsevier.
    11. Elton, Edwin J. & Gruber, Martin J. & de Souza, Andre, 2019. "Passive mutual funds and ETFs: Performance and comparison," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 265-275.
    12. Stephanie E. Lang & Klaus Röder, 2008. "Die Kosten des Indextrackings — Eine Fallstudie über den Exchange Traded Fund DAX®EX," Schmalenbach Journal of Business Research, Springer, vol. 60(3), pages 298-321, May.
    13. Patrick Kuok-Kun Chu, 2016. "Analysis and Forecast of Tracking Performance of Hong Kong Exchange-Traded Funds: Evidence from Tracker Fund and X iShares A50," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-26, December.
    14. Jagjeev Dosanjh, 2017. "Exchange Initiatives and Market Efficiency: Evidence from the Australian Securities Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2017.
    15. Priya Malhotra & Pankaj Sinha, 2023. "Exchange-traded Funds in India Amid COVID-19 Crisis: An Empirical Analysis of the Performance," Metamorphosis: A Journal of Management Research, , vol. 22(1), pages 38-54, June.
    16. Aakanksha Sethi & Vanita Tripathi, 2022. "Excess Volatility and Costly Arbitrage in Exchange Traded Funds (ETFs): Evidence from India," Global Business Review, International Management Institute, vol. 23(2), pages 334-353, April.
    17. Agapova, Anna, 2011. "Conventional mutual index funds versus exchange-traded funds," Journal of Financial Markets, Elsevier, vol. 14(2), pages 323-343, May.
    18. Gerasimos G. Rompotis, 2011. "ETFs vs. Mutual Funds: Evidence from the Greek Market," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 9(1), pages 67-84.
    19. Alexander, C. & Barbosa, A., 2008. "Hedging index exchange traded funds," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 326-337, February.
    20. repec:uts:finphd:34 is not listed on IDEAS
    21. Charteris, Ailie & Chau, Frankie & Gavriilidis, Konstantinos & Kallinterakis, Vasileios, 2014. "Premiums, discounts and feedback trading: Evidence from emerging markets' ETFs," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 80-89.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:assmgt:v:10:y:2009:i:4:d:10.1057_jam.2009.13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.