European bond ETFs: tracking errors and the sovereign debt crisis

Drenovak, Mikica, Urošević, Branko and Jelic, Ranko (2014) European bond ETFs: tracking errors and the sovereign debt crisis. European Financial Management, 20 (5). pp. 958-994. ISSN 1354-7798

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Abstract

This study examines the tracking performance of 31 eurozone sovereign debt exchange traded index funds (ETFs) during 2007-2010. The tracking performance is assessed by four different tracking error models. Overall, funds underperform their respective benchmarks. Active returns (net of fees) vary substantially (from +46.74 to -30.36 basis points) and are of considerable economic interest. The significant differences in the performance of swap-based and in-kind funds highlight the importance of appropriate (e.g. correlation vs. cointegration based) metrics required for the assessment of funds adopting different replication methods. We also document important changes in the tracking performance due to the changing characteristics of EU sovereign bonds since the start of the sovereign debt crisis.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HG Finance > HG3810 Foreign exchange. International finance. International monetary system
Depositing User: Ranko Jelic
Date Deposited: 15 Dec 2014 11:43
Last Modified: 15 Dec 2014 11:43
URI: http://sro.sussex.ac.uk/id/eprint/51682
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