The Measurement of Tracking Errors of Gold ETFS: Evidence from China
Abstract
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.
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Copyright (c) 2016 Wei-Fong Pan, Ting Li
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