n Investment Analysts Journal - The relative tracking ability of South African exchange traded funds and index funds
|Article Title||The relative tracking ability of South African exchange traded funds and index funds|
|© Publisher:||Taylor & Francis|
|Journal||Investment Analysts Journal|
|Affiliations||1 University of KwaZulu-Natal, 2 University of KwaZulu-Natal and 3 University of KwaZulu-Natal|
|Publication Date||Jan 2015|
|Pages||117 - 133|
|Keyword(s)||Exchange traded funds, Index funds, Passive investing and Tracking error|
ISI Social Science
The Efficient Market Hypothesis holds that it is not possible to 'beat the market' and that a passive investment strategy is optimal. Traditionally investors have been able to do this by investing in index funds replicating an index, but the emergence of exchange traded funds (ETFs) has afforded investors with an alternative passive investment strategy. This paper employs several measures of tracking error to test the relative tracking ability of index funds and ETFs which track the FTSE/JSE Top 40 index. We find that ETF's are superior tracking instruments, although there is evidence to suggest that the performance of index funds has improved over the most recent three-year period.
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