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Tracking errors of exchange traded funds

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  • William F Johnson

    (Barry Kaye College of Business, Florida Atlantic University)

Abstract

This article constitutes a comprehensive study of 20 foreign country exchange traded funds (ETFs) and the underlying index returns from 1997 to 2006. The purpose of the study is to explain the existence of tracking errors between foreign ETFs and the underlying home index on a daily and monthly return basis and what contributes to these differences across time and across countries. This study concludes all, but one market segmentation/integration index rankings proved to be insignificant. Variables such as foreign index positive returns relative to the US index and whether the foreign exchange trades simultaneously with the US markets were significant explanatory variables in the correlation coefficients between ETFs and their underlying home index.

Suggested Citation

  • William F Johnson, 2009. "Tracking errors of exchange traded funds," Journal of Asset Management, Palgrave Macmillan, vol. 10(4), pages 253-262, October.
    • Handle: RePEc:pal:assmgt:v:10:y:2009:i:4:d:10.1057_jam.2009.10
    DOI: 10.1057/jam.2009.10
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    References listed on IDEAS

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    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. 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.
    3. 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.
    4. Chen, Mei-Ping & Lee, Chien-Chiang & Hsu, Yi-Chung, 2017. "Investor sentiment and country exchange traded funds: Does economic freedom matter?," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 285-299.
    5. 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.
    6. 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.
    7. 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).
    8. Lee, Chien-Chiang & Chen, Mei-Ping, 2020. "Do natural disasters and geopolitical risks matter for cross-border country exchange-traded fund returns?," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    9. Blitz, David & Huij, Joop, 2012. "Evaluating the performance of global emerging markets equity exchange-traded funds," Emerging Markets Review, Elsevier, vol. 13(2), pages 149-158.

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