A Comprehensive Evaluation of Commodity Tracking Divergence

Colburn Hassman, Olga Isengildina-Massa and Shamar Stewart

No 316398, 2021 Conference from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: This paper investigates differences in returns between the ETF price, Net Asset Value, and Benchmark Asset Baskets for five popular futures-backed ETFs. We decompose tracking difference to examine the relative size of tracking differences attributable to managers versus the arbitrage process. Tracking differences attributable to managers is found to be significantly smaller than that attributable to the arbitrage process. We then test for average Tracking Differences using the Mincer-Zarnowitz Equation. We find evidence of bias in returns for multiple ETFs and demonstrate the usefulness of the decomposition. Furthermore, we investigate the dynamics of Tracking Error using a GARCH methodology. We find support that the volatility of the ETF effects Tracking Error but find no evidence that rolling futures contracts influences Tracking Error.

Keywords: Marketing (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nccc21:316398

DOI: 10.22004/ag.econ.316398

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