Does Warrant Trading Matter in Tracking Errors of China-Focused Exchange-Traded Funds?

This article examines the impact of warrant trading on tracking errors in China-focused exchange-traded funds (ETFs) listed in Hong Kong. We followed Shin and Soydemir (2010) in adopting average absolute differences, standard errors from regression analysis, and standard deviation of return differen...

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Bibliographic Details
Published in:The Chinese economy 2014-01, Vol.47 (1), p.53-66
Main Authors: Shum, Wai-Cheong, Kan, Andy C. N., Chen, Tao
Format: Article
Language:English
Subjects:
Assets
Average
China
Derivatives
Deviation
Effects
Exchange traded funds
Fund management
Hong Kong
Investment
Products
Regression analysis
Standard deviation
Studies
Citations: Items that this one cites
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Summary:This article examines the impact of warrant trading on tracking errors in China-focused exchange-traded funds (ETFs) listed in Hong Kong. We followed Shin and Soydemir (2010) in adopting average absolute differences, standard errors from regression analysis, and standard deviation of return differences to measure the tracking errors before and after first-time warrant issuance. Our results indicate that tracking errors in China-focused ETFs are amplified after first-time warrant listing, implying that derivative products encourage speculative investment in the underlying assets. We used control-sample ETFs to verify further that our results were not driven by differences between the underlying assets.
ISSN:1097-1475
1558-0954
DOI:10.2753/CES1097-1475470103