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European Bond ETFs: Tracking Errors and the Sovereign Debt Crisis

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  • Mikica Drenovak
  • Branko UroÅ¡ević
  • Ranko Jelic

Abstract

This study examines the tracking performance of 31 eurozone sovereign debt exchange traded index funds (ETFs) during 2007–2010. The tracking performance is assessed by four different tracking error models. Overall, funds underperform their respective benchmarks. Active returns (net of fees) vary substantially (from +46.74 to −30.36 basis points) and are of considerable economic interest. The significant differences in the performance of swap†based and in†kind funds highlight the importance of appropriate (e.g. correlation vs. cointegration based) metrics required for the assessment of funds adopting different replication methods. We also document important changes in the tracking performance due to the changing characteristics of EU sovereign bonds since the start of the sovereign debt crisis.

Suggested Citation

  • Mikica Drenovak & Branko UroÅ¡ević & Ranko Jelic, 2014. "European Bond ETFs: Tracking Errors and the Sovereign Debt Crisis," European Financial Management, European Financial Management Association, vol. 20(5), pages 958-994, November.
    • Handle: RePEc:bla:eufman:v:20:y:2014:i:5:p:958-994
    DOI: 10.1111/j.1468-036X.2012.00649.x
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    References listed on IDEAS

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    Cited by:

    1. Sant’Anna, Leonardo Riegel & Righi, Marcelo Brutti & Müller, Fernanda Maria & Guedes, Pablo Cristini, 2022. "Risk measure index tracking model," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 361-383.
    2. 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.
    3. Piccotti, Louis R., 2020. "Strategic trade when securitized portfolio values are unknown," Journal of Banking & Finance, Elsevier, vol. 115(C).
    4. 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.
    5. 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).
    6. 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).
    7. 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.
    8. Mladen Stamenković, 2023. "Where Did All The Papers Go? A Bibliometric Overview Of Publications In Economics From Serbia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 68(236), pages 29-50, January –.

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