Evaluating the performance of indian exchange-traded funds

Abstract

We estimate tracking errors from 33 equity-based Indian ETFs of twelve benchmarks using five years of historical data. We use three different methods to calculate the tracking error namely: absolute difference of return, standard deviation of error term, and regression analysis. From this, we find that the tracking error exists and that these ETFs do not replicate their benchmark completely, meaning the tracking error is different from zero. After this, we also investigate if factors such as expense ratio and fund size influence the tracking error. This research contributes to the study of Indian ETFs as it is an untouched area of research.