Finance and Financial Management Commons^™

On Performance & Tracking Error In Exchange-Traded Funds And Index Mutual Funds, Steven Welch

Accounting and Finance Faculty Publications

Using daily data, we find abnormal returns associated with the ETFs are higher than the alphas of the index funds in most cases. This result is in contrast to previous results that conclude that index funds tend to have higher alphas than ETFs. The results are much more prevalent in funds that follow the S&P 500 than funds that do not. One explanation for the difference in results is the more comprehensive sample of ETFs analyzed here. When looking at the components of abnormal returns, several regressions were performed. We find that market concentration, turnover, and no load are at …