The goal of this study is to determine which fund and/or country specific characteristics lead to accurate performance in terms of tracking the country-specific stock market index.
Background:
Exchange-traded funds (ETFs), like mutual funds, invest in a pool of investment instruments. Unlike mutual funds, ETFs trade like individual shares on stock exchanges. ETFs have grown dramatically since their creation in 1993. In 2016, the total number of ETFs worldwide was 4,779 (https://www.statista.com/statistics/278249/global-number-of-etfs/). This study focuses on ETFs that have the stated objective of tracking a specific country stock market index (e.g. ticker SXR8 for the S&P 500 in the United States of America, ticker DBXD for the DAX in Germany, ticker SXRZ for the Nikkei in Japan).
Data/Methods
This study examines the tracking error of country-specific international exchange traded fund performance in 2016 relative to the country specific benchmark performance. A total of 148 ETFs from 18 different countries are examined. The tracking error of specific fund performance relative to its stated benchmark is compared while controlling for market maturity level, trading volume, Heritage index of financial freedom, fund size, expense ratio and turnover ratio. The specific countries (number of funds) included are Australia (3), Brazil (6), Canada (7), China (17), Germany (11), Greece (1), India (4), Japan (21), Mexico (3), Russia (6), South Africa (4), South Korea (5), Switzerland (5), Taiwan (5), Turkey (4), United Kingdom (12), United State of America (30).
Expected Results:
The author expects to find the following significant relationships between independent variables and the dependent variable: tracking error = Square root of (fund return – benchmark return)2. Market maturity level, trading volume, Heritage index of financial freedom, and fund size are expected to have a negative relationship with the dependent variable. Expense ratio and turnover ratio are expected to have a positive relationship.