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ETP tracking of U.S. agricultural and energy markets

Author

Listed:
  • Stewart, Shamar L.
  • Massa, Olga Isengildina
  • Hassman, Colburn
  • Leon, Maximo de

Abstract

This study assesses the tracking performance of several futures-backed commodity exchange-traded funds (ETFs), single commodity exchange-traded notes (ETNs), and commodity sector ETNs relevant to agricultural market participants. We decompose total tracking errors into managerial and arbitrage components. Our findings reveal that the arbitrage process is the primary driver of observed tracking errors. ETNs tend to exhibit much larger tracking errors than ETFs. The tracking performance was not substantially different across agricultural and energy ETFs nor across single commodity and commodity sector ETNs. Using a GARCH model, the study reveals greater persistence of tracking errors for ETNs than ETFs. Roll dates do not significantly affect the volatility of tracking errors. On the other hand, trading volume, lagged ETF price volatility, and broad market volatility may result in poorer ETF tracking performance.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:jocoma:v:31:y:2023:i:c:s240585132300034x
    DOI: 10.1016/j.jcomm.2023.100344
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    References listed on IDEAS

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    More about this item

    Keywords

    Agricultural commodities; Exchange-traded funds (ETFs); Exchange-traded notes (ETNs); GARCH; Tracking error; Tracking performance; Volatility;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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