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Analysis of International ETF Tracking Error in Country-Specific Funds

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  • Kent T. Saunders

    (Anderson University)

Abstract

The goal of this study is to determine which fund or country-specific characteristics predict accurate performance in terms of tracking country-specific stock market indices. Ninety-three country-specific exchange-traded funds from 47 different countries are included in this study. In accordance with market integration theory, the Heritage Foundation Economic Freedom Index is a significant explanatory variable for tracking error. In agreement with the momentum effect, the exchange-traded fund return relative to the total U.S. equity market return is a significant explanatory variable for tracking error. Finally, the exchange-traded fund expense ratio is a significant explanatory variable for tracking error. Investors seeking returns from international investments should carefully examine their country of interest Economic Freedom Index and fund-specific expense ratio in order to anticipate any divergence from their exchange-traded fund return and the benchmark index return.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:atlecj:v:46:y:2018:i:2:d:10.1007_s11293-018-9574-x
    DOI: 10.1007/s11293-018-9574-x
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    References listed on IDEAS

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    1. Hassine, Marlène & Roncalli, Thierry, 2013. "Measuring Performance of Exchange Traded Funds," MPRA Paper 44298, University Library of Munich, Germany.
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    1. Goel, Garima & Ahluwalia, Eshan, 2021. "Do pricing efficiencies in Indian equity ETF market impact its performance?," Global Finance Journal, Elsevier, vol. 49(C).

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