The German Exchange Traded Funds
Gerasimos Georgiou Rompotis
University of Athens - Faculty of Economics
December 4, 2012
The IUP Journal of Applied Finance, Vol. 18, No. 4, October 2012, pp. 62-82
This paper investigates the performance and trading characteristics of 43 German Exchange Traded Funds (ETFs) traded on XTRA market during the period 2003-05. The findings show that these ETFs perform similar to the underlying indexes but are riskier than indexes. German ETFs do not adopt full replication strategies, a fact that results in a substantial tracking error. Return is positively related to risk and negatively related to tracking error. Furthermore, the volatility of German ETF returns is found to be positively correlated to tracking error, premium and intraday volatility, which means that the higher the magnitude of these variables, the higher the risk of ETFs. On the other hand, the risk of investing in German ETFs is negatively related to bid-ask spread. Tracking error is positively related to risk, premium and spread, while the expense ratio decreases when the size of ETFs increases due to economies of scale. Going further, the magnitude of bid-ask spread and the corresponding cost of investing in German ETFs increase when the premium and intraday volatility increase too. Finally, turnover is negatively related to intraday volatility.
Accepted Paper Series
Date posted: December 5, 2012
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