Tracking Errors and Their Determinants: Evidence from Taiwan, Hong Kong and China Exchange Traded Funds

• Main Authors: Ting-Huan Yu, 尤亭歡
• Other Authors: Tsun-Siou Lee
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/35296064163046904659

碩士 === 國立臺灣大學 === 財務金融學研究所 === 102 === This paper estimates tracking errors in exchange traded funds (ETFs) listed on the stock exchange in Taiwan, Hong Kong and China from 2009 to 2013. The results show that the monthly ETF returns underperform the benchmark index returns due to ETF management fees and transaction costs to replicate index. The magnitudes of absolute value of difference between ETF returns and index returns from Taiwan, Hong Kong and China averages 48.03, 45.76 and 31.24 basis points per month, respectively, which are significantly different from zero at the 1% level. The results also suggest that the monthly tracking errors are comparatively lower in China ETFs than in Taiwan and Hong Kong ETFs, because most of the ETFs in China comprise only domestic securities, which reduces tracking errors caused by changes in the exchange rate and synthetic index replication strategies. A comparison of tracking errors in ETFs comprising only domestic securities among three areas indicates that tracking performance in Taiwan ETFs is better than that in Hong Kong and China ETFs. When comparing tracking errors in ETFs comprising foreign securities among three areas, the tracking performance in Hong Kong ETFs is superior to that in the other two areas. Further analysis documents that the magnitude of tracking errors is related to total expense ratio, exchange rate, fund size, trading volumes of funds, index replication strategies and tracking performance by areas.