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Evaluating the performance of global emerging markets equity exchange-traded funds

Evaluating the performance of global emerging markets equity exchange-traded funds

08-02-2011 | Research

We examine the performance of passively managed exchange-traded funds (ETFs) that provide exposure to global emerging markets equities. We find that the tracking errors of these funds are substantially higher than previously reported levels for developed markets ETFs.

  • David Blitz
    David
    Blitz
    PhD, Executive Director, Head of Quant Selection Research
  • Joop  Huij
    Joop
    Huij
    PhD, Executive Director, Head of Factor Investing Equities and Head of Factor Index Research

ETFs that use statistical index replication techniques turn out to be especially prone to high tracking errors, and particularly so during periods of high cross-sectional dispersion in stock returns. At the same time, we find no convincing evidence that these funds earn higher returns than ETFs that rely on full-replication techniques.

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