An empirical analysis, on the tracking ability of exchange traded funds

Abstract

Exchange Traded Funds have been integrated in the financial world as financial instruments since the past twenty years, offering investors an alternative exposure to a different type of investment. A number of papers and articles within journals have been written about the impact of these financial instruments in this ever changing financial industry. The main aim of Exchange Traded Funds is to track the particular underlying index and not to generate an additional gain above the returns provided by the said underlying index. Through quantitative research, in this dissertation I look at thirty Exchange Traded Funds, from different groups, with the aim to identify whether they were able to track the underlying index. I shall look also at the tracking ability of whether a particular group performs better than the others. Apart from this, each group of Exchange Traded Funds is split into sub periods to analyse the effect of different time periods on their tracking ability, to identify whether particular events within the financial industry may have hindered tracking ability.