n Management Dynamics : Journal of the Southern African Institute for Management Scientists - The tracking efficiency of exchange-traded funds listed on the Johannesburg Stock Exchange

Volume 28 Number 4
  • ISSN : 1019-567X


Exchange-traded funds (ETFs) have grown in popularity amongst investors over the last decade, both globally and in South Africa. The purpose of this study was to investigate how efficiently Johannesburg Stock Exchange-listed ETFs track their benchmark indices. Three tracking error measures were calculated for a sample of ETFs that track both local and international equity indices for the period from 2002 to 2018. In addition, three correlation measures were used to evaluate the extent of the relationship between ETF returns and those of their reference benchmarks. The results show that weekly tracking errors are significantly different from zero for both local and international tracking ETFs. The results of the correlation analysis were also significantly different from perfectly linear relationships. The findings show that there is little evidence that ETFs tracking local equity indices track their benchmarks more efficiently than ETFs that follow international equity indices. This study contributes to the existing literature by highlighting the degree to which equity ETFs’ performance deviates from the intended benchmark performance. In addition, the study offers evidence that contradicts empirical studies that have shown that ETFs tracking international equity indices have larger tracking errors than those of ETFs that track domestic benchmarks.

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