Index Fund Tracking Error Theory And Empirical Research

Along with the constantly increase of Chinese security market, Security Investment Funds have become stronger and stronger and Index Funds are very popular with investors now. An Index fund generally adopts its portfolio based on certain index, which is closely related with target index. The major elements of an Index fund include the target index, sample securities and weight allocation. So its holding period yield (HPY) fluctuates with target index HPY, which results in Tracking Error.According to the theses, using Eviews and Excel, Chapter Two has a theoretical and empirical study on selection of object index for indexing and how it affects the result index tracking. The conclusions are as follows:(1)Take into accounting different style Index Funds, trading cost occupies an unimportant position in the structure of factors which bring on tracking error; cash drag and index replicating error oppositely are in the ascendancy, but the structures are not same; Expenditure also has efforts on tracking error to a different extent;(2) If the relativity between NAV of an index fund and the closed price of corresponded target index is feeble, HPY of the index fund is worse than that of target index and tracking error is commonly very large, vice versa;(3)The empirical studies on TE factors of Purely- Duplicated Index Funds are better than these of Enhanced Index Funds;the empirical studies of old Index Funds are better than these of new Index Funds;residual TE~2 achieves a dominant position in the structure of TE, others are subordinate;(4)The number of outliers from HPY balance is more than that from residual; An Index Fund has large TE doesn't mean the Index Fund has more outliers.The major contributions of this dissertation include:(1)Find out the model of the route that TE factors affect Index Funds; Take a corresponded empirical study on different style Index funds;(2)Give a contrast of empirical studies which come from traditional single factor evaluating mode and tracking error model about how to evaluate security fund achievements, find out the relation between them;(3) Have an empirical study on the structure of factors which bring about tracking errors, through analyzing the result, get the source of these factors; finally draw some important conclusions and advice;(4) Find out the model of choosing outliers; take a corresponded empirical study, choose the outliers of different style Index funds, and search the corresponded causes.