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Tracking ability of exchange-traded funds. Evidence from Emerging Markets Equity ETFs

Author

Listed:
  • Tomasz Miziołek

    (University of Lodz, Faculty of Economics and Sociology, Department of International Finance and Investments)

  • Ewa Feder-Sempach

    (University of Lodz, Faculty of Economics and Sociology, Department of International Finance and Investments)

Abstract

In recent years asset growth of passively managed funds, including ETFs, has been substantial all over the world. The main purpose of an ETF is to replicate both the return and risk characteristics of the underlying index. The efficiency of an ETF is usually evaluated by analyzing tracking errors (TEs), i.e. the difference between the movement of its price and the benchmark. The main aim of the article is to examine the tracking efficiency of 14 ETFs listed on European exchanges that try to mirror the performance of the MSCI Emerging Markets Index in 2012−2017. The study has revealed that ETFs are quite effectively managed as TE values were generally lower than those presented in the literature. The results also show that the TE values achieved by the standard deviation of the difference between the return of the fund and that of its benchmark index were similar to those obtained via the method of standard error of regression. Besides, the lowest TE values were observed at weekly intervals, whereas the highest at daily ones.

Suggested Citation

  • Tomasz Miziołek & Ewa Feder-Sempach, 2019. "Tracking ability of exchange-traded funds. Evidence from Emerging Markets Equity ETFs," Bank i Kredyt, Narodowy Bank Polski, vol. 50(3), pages 221-248.
    • Handle: RePEc:nbp:nbpbik:v:50:y:2019:i:3:p:221-248
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    exchange-traded funds (ETFs); tracking efficiency; tracking error; tracking difference; emerging markets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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