The Measurement of Tracking Errors of Gold ETFS: Evidence from China

• Main Authors: Wei-Fong Pan, Ting Li
• Format: Article
• Language: English
• Published: Tuwhera Open Access Publisher 2016-06-01
• Series: Applied Finance Letters
• Subjects: Tracking Errors; ETFs; Commodities; Gold; China
• Online Access: https://ojs.aut.ac.nz/applied-finance-letters/article/view/31

This paper presents the first study on the measurement of tracking errors using daily figures for gold exchange-traded funds (ETFs) in China. Three methods are employed to measure tracking errors: 1) calculating the absolute error measure, 2) calculating the differences between the standard deviation of the benchmark index and the ETF, and 3) a regression analysis of empirical returns. In general, the results suggest that the tracking errors of these ETFs in China are lower than those of equitybased ETFs in Hong Kong, the US, and Australia. This study further applied two optimised replication portfolios (50-10-10-30 and 90-2-3-5) for a total of three types of simulation portfolio. The overall results suggest that the performances of the optimised replication portfolios were better than the performance of the full replication portfolio. Our results provide valuable insight for both institutional and retail investors and the opportunity for exposure to a wide range of commodity ETFs in China.