Abstract
Tracking error in index fund performance is unavoidable. It arises because the underlying index is measured as a paper portfolio, and it is assumed perfect replication can be achieved instantaneously and without cost. Tracking error has two components: exogenous tracking error (the result of index rules and maintenance procedures applied to the underlying index) and endogenous tracking error (the result of the individual activities of index managers managing open-end passive funds). An examination of a sample of S&P 500 index mutual funds upon changes to the Index Divisor identifies a number of exogenous factors that are important determinants of tracking error for S&P 500 index funds.
- © 2004 Pageant Media Ltd
Don’t have access? Click here to request a demo
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600