What causes ETF tracking error?
What causes ETF tracking error? Tracking error can be caused by two reasons. First, by the trading cost and second, by improperly replicating the index. For an ETF, tracking error is the deviation in performance of the fund and its index. It occurs primarily because of the ETF's total expense ratio (a kind of trading cost). What is tracking error volatility? Tracking error, also known as active risk, measures, in standard deviation, the fluctuation of returns of a portfolio relative to the fluctuation of returns of a reference index. As such, it gives an indication of how closely a portfolio...