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Analysis of International ETF Tracking Error in Country-Specific Funds

Kent T. Saunders ()
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Kent T. Saunders: Anderson University

Atlantic Economic Journal, 2018, vol. 46, issue 2, 151-160

Abstract: Abstract The goal of this study is to determine which fund or country-specific characteristics predict accurate performance in terms of tracking country-specific stock market indices. Ninety-three country-specific exchange-traded funds from 47 different countries are included in this study. In accordance with market integration theory, the Heritage Foundation Economic Freedom Index is a significant explanatory variable for tracking error. In agreement with the momentum effect, the exchange-traded fund return relative to the total U.S. equity market return is a significant explanatory variable for tracking error. Finally, the exchange-traded fund expense ratio is a significant explanatory variable for tracking error. Investors seeking returns from international investments should carefully examine their country of interest Economic Freedom Index and fund-specific expense ratio in order to anticipate any divergence from their exchange-traded fund return and the benchmark index return.

Keywords: Exchange traded funds; Tracking error; Country-specific ETFs; F39; G10; G15 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:atlecj:v:46:y:2018:i:2:d:10.1007_s11293-018-9574-x