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Is the Tracking Error Time-Varying? Evidence from Agricultural ETCs

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Abstract

This study extensively analyses a recently popularised 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.

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  • 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.
    • Handle: RePEc:cbt:econwp:22/13
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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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