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

  • Wei-Fong Pan
  • Ting Li
Keywords: Tracking Errors, ETFs, Commodities, Gold, China


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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Author Biographies

Wei-Fong Pan

Investment Analyst, Sales and Trading Department, Ping An Futures Co. Ltd. China

Ting Li

Portfolio Manager, Sino Life Asset Management Co. China

How to Cite
Pan, W.-F., & Li, T. (2016). The Measurement of Tracking Errors of Gold ETFS: Evidence from China. Applied Finance Letters, 5(1), 2-11.
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