Title: Decomposition of tracking difference components for leveraged exchange traded products

Authors: Fatollah Salimian; Herman Manakyan

Addresses: Department of Information and Decision Sciences, Franklin P. Perdue School of Business, Salisbury University, 1101 Camden Avenue, Salisbury, MD 21804, USA ' Department of Economics and Finance, Franklin P. Perdue School of Business, Salisbury University, 1101 Camden Avenue, Salisbury, MD 21804, USA

Abstract: The tracking difference is arguably the gold standard of measuring the performance of leveraged exchange traded products. The objective of this research is to identify the elements that give rise to the formation of tracking differences and pinpoint the relative importance of these elements under different financial environments. In this study, we analysed the tracking differences of both unleveraged and leveraged ETPs in different asset categories. Specifically, we used daily values for the Standard and Poor's 500 total return index (S&P 500 TR) and the price of West Texas Intermediate (WTI) crude as benchmarks for two different asset categories of ETPs. The tracking differences for each of these selected leveraged and unleveraged ETPs were decomposed using classical additive time series model.

Keywords: market returns; leveraged exchange traded products; LETPs; tracking difference; additive time series model; beta slippage.

DOI: 10.1504/IJFMD.2023.139125

International Journal of Financial Markets and Derivatives, 2023 Vol.9 No.4, pp.287 - 297

Received: 20 Dec 2022
Accepted: 08 Oct 2023
Published online: 14 Jun 2024 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article