Decomposition of tracking difference components for leveraged exchange traded products
by Fatollah Salimian; Herman Manakyan
International Journal of Financial Markets and Derivatives (IJFMD), Vol. 9, No. 4, 2023

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.

Online publication date: Fri, 14-Jun-2024

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