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TRACKING ERRORS AND THEIR DETERMINANTS: EVIDENCE FROM JAPAN-LISTED EXCHANGE-TRADED FUNDS
Chu, Patrick Kuok Kun1; Xu, Dan2
2021-07
Source PublicationJournal of Prediction Markets
ISSN1750-676X
Volume15Issue:1Pages:67-96
Abstract

The purposes of this study are to compare the tracking error between 53
sampled physical and 15 over-the-counter (OTC) swap-type exchange-traded
funds (ETFs) on the Tokyo Stock Exchange, and to contribute to a better
understanding of the impact of selected determinants on the daily tracking
error. The sample synthetic ETFs are found having higher tracking error than
the sampled physical ETFs. The synthetic-type ETF managers may be difficult
in using derivatives to replicate the benchmark performance. A panel regression
model with cross-section fixed effects indicates the tracking error of the
sampled physical ETFs is negatively related to size but positively related to
expense ratio, dividend yield, trading volumes, market risk, and number of
constituents in the target indexes. The results conform with the hypotheses that
the expense, delay in receiving dividends, the trading cost and the market risk
may erode the tracking ability; on the other hand, the economies of scale will
improve the tracking ability. This study may help to raise a broader discussion
of potential tracking error determinants and to provide new insights.

KeywordExchange-traded Fund Tracking Error Panel Regression Model Fixed-effects Estimation
DOIhttps://doi.org/10.5750/jpm.v15i1.1851
URLView the original
Funding ProjectStudy on the Determinants of Tracking Errors of Japan Exchange Traded Funds (ETF)
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Document TypeJournal article
CollectionFaculty of Business Administration
DEPARTMENT OF ACCOUNTING AND INFORMATION MANAGEMENT
Affiliation1.Department of Accounting and Information Management, Faculty of Business Administration, University of Macau
2.Zhuhai Da Heng Qin Company, Guangdong, China
First Author AffilicationFaculty of Business Administration
Recommended Citation
GB/T 7714
Chu, Patrick Kuok Kun,Xu, Dan. TRACKING ERRORS AND THEIR DETERMINANTS: EVIDENCE FROM JAPAN-LISTED EXCHANGE-TRADED FUNDS[J]. Journal of Prediction Markets,2021,15(1):67-96.
APA Chu, Patrick Kuok Kun,&Xu, Dan.(2021).TRACKING ERRORS AND THEIR DETERMINANTS: EVIDENCE FROM JAPAN-LISTED EXCHANGE-TRADED FUNDS.Journal of Prediction Markets,15(1),67-96.
MLA Chu, Patrick Kuok Kun,et al."TRACKING ERRORS AND THEIR DETERMINANTS: EVIDENCE FROM JAPAN-LISTED EXCHANGE-TRADED FUNDS".Journal of Prediction Markets 15.1(2021):67-96.
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