Is the tracking error time-varying? Evidence from agricultural ETCs

• Published in: Research in international business and finance Vol. 63; p. 101738
• Main Authors: Perera, Devmali, Białkowski, Jędrzej, Bohl, Martin T.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-12-2022
• Subjects: Agricultural commodity market; Exchange-traded commodities; Markov switching regression; Tracking error; ETP; C24; MS; G23; IETC; G14; LETC; Markov switching regression; Agricultural commodity market; TE; Exchange-traded commodities; Q14; ETC; ETF; Tracking error
• ISSN: 0275-5319; 1878-3384
• DOI: 10.1016/j.ribaf.2022.101738

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.
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•We examine a recently popularized asset class, namely, exchange-traded commodities (ETCs).•The tracking error of ETCs is dependent on the volatility of the underlying commodity prices but not persistent.•The replication method and leverage have an impact on tracking ability of agricultural ETCs.•The structure of an ETC and the time varying volatility of agricultural prices matter for its tracking performance.