Date of Award
Spring 2026
Degree Type
Honors College Thesis
Academic Program
Finance BSBA
Department
Finance, Real Estate, and Business Law
First Advisor
Srinidhi Kanuri
Advisor Department
Finance, Real Estate, and Business Law
Abstract
Municipal bond exchange-traded funds (ETFs) provide diversified exposure to state and local government bonds through a single tradable security. They also provide interest that is usually exempt from federal income tax. This thesis examines 31 investment-grade and 3 high-yield municipal bond ETFs from April 2015 to February 2025 and compares them with three passively managed broad-market bond ETFs: BND (investment-grade bonds), SCHR (Treasury bonds), and JNK (high-yield corporate bonds). Using tracking error, volatility, and returns across the pre-COVID, COVID, and post-COVID periods, the results show that municipal bond ETFs—especially high-yield funds—have higher tracking errors, greater volatility, and more variable returns than these passive bond ETFs. Investment-grade municipal (muni) ETFs are more stable but still exhibit higher tracking errors and volatility than BND and SCHR. In contrast, the passive broad-market ETFs remain much more stable and track their benchmarks closely because they hold bonds that trade more frequently and have greater price transparency.
Copyright
Copyright for this thesis is owned by the author. It may be freely accessed by all users. However, any reuse or reproduction not covered by the exceptions of the Fair Use or Educational Use clauses of U.S. Copyright Law or without permission of the copyright holder may be a violation of federal law. Contact the administrator if you have additional questions.
Recommended Citation
Chikin, Maksym, "Assessing Tracking Error of the Municipal Bond ETFs" (2026). Honors Theses. 1112.
https://aquila.usm.edu/honors_theses/1112