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Is the tracking error time-varying? Evidence from agricultural ETCs

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  • Perera, Devmali
  • Białkowski, Jędrzej
  • Bohl, Martin T.

Abstract

This study extensively analyses a recently popularized asset class, exchange-traded commodities (ETCs). We demonstrate that the tracking error of ETCs is dependent on the volatility of the underlying commodity prices but not persistent. Furthermore, we find the tracking ability of agricultural ETCs is affected by the replication method and the leverage of the ETCs. Our findings are important for academics and market regulators as they indicate the structure of an ETC and the time-varying volatility of agricultural prices matters for its tracking performance.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:riibaf:v:63:y:2022:i:c:s027553192200126x
    DOI: 10.1016/j.ribaf.2022.101738
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    More about this item

    Keywords

    Agricultural commodity market; Exchange-traded commodities; Markov switching regression; Tracking error;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • 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
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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