Author

John Haire

Date of Award

5-2019

Degree Type

Honors College Thesis

Department

Finance, Real Estate, and Business Law

First Advisor

Srinidhi Kanuri, Ph.D.

Advisor Department

Finance, Real Estate, and Business Law

Abstract

Exchange Traded Funds (ETFs) are a diversified pool of assets that trade on an exchange and track an index. Tracking error is the difference between a portfolio's returns and the benchmark or index it was meant to mimic. Investors want the Exchange Traded Funds (ETFs) to track the benchmark very closely or have the tracking error as low as possible. This paper looks at the tracking errors of different S&P sector ETFs by using the average absolute differences in monthly returns between the ETF and its benchmark index. The results indicate that the Technology and Real Estate sectors have the highest tracking error while Consumer Discretionary and Consumer Staples have the lowest tracking errors. I also look at ETFs Beta which is a measure of systematic risk to determine if this measure of risk could be a source of tracking error. I find that ETFs tracking error does not depend on sector risk.

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