Is the Tracking Error Time Varying? Evidence from Agricultural ETCs
Bialkowski, Jedrzej; Bohl, Martin T.; Perera, Devmali
This study extensively analyses a recently popularized asset class, exchange-traded commodities (ETCs). We demonstrate that the tracking error of ETCs is dependent on the volatility of the underlying commodity prices but not persistent. Furthermore, we find the tracking ability of agricultural ETCs is affected by the replication method and the leverage of the ETCs. Our findings are important for academics and market regulators as they indicate the structure of an ETC and the time-varying volatility of agricultural prices matters for its tracking performance.
Agricultural commodity market Exchange-traded commodities Markov switching regression Tracking error