Tracking accuracy of large and small-CAP ETF's: An empirical analysis of the Istanbul stock exchange

Abstract

In this study, we examine the tracking performance of two ETFs, namely DJIST and SMIST, both traded on the Istanbul Stock Exchange, with respect to their own indices. We carry out an analysis first to identify each ETF's tracking ability of underlying index, and second to explore whether any differences exist between the return of large-cap and the return of small-cap stock ETFs, and their indices. By employing a data set of calculated daily returns for the specified ETFs and their corresponding indices, t-tests and regression analyses are conducted. Our findings suggest that both DJIST and SMIST stocks performed well in tracking their own indices' returns. However, the mimicking ability of DJIST stock is better than that of SMIST. Possible explanations regarding this difference are that the SMIST's introduction into the market is relatively new compared to the DJIST, and that the SMIST represents small-cap stocks with considerable illiquidity problems, while the DJIST represents large-cap stocks. Despite the odds, against the SMIST, it still shows a tracking performance that should be acknowledged, given both its place in an emerging market and its strength within such a short period of time.