Tracking efficiency of Australian equity ETFs

This paper assesses the tracking efficiency of seventy equity exchange-traded funds (ETFs) listed in the Australian Stock Exchange over the period 2017-2023. The factors that may affect tracking efficiency are examined too. Our empirical results show that the ETFs in Australia underperform their benchmarks by an average rate of 34% at the cumulative level. As a corollary, the tracking error of the examined ETFs is not immaterial. The tracking inefficiency of ETFs is positively related to the non-full replication strategies applied by the managing companies, while the age of ETFs also seems to have a significant impact on tracking efficiency. Some significant differences in tracking errors among the managing companies of ETFs are revealed too.