Price volatility and tracking ability of ETFs

In this paper, we examine the price volatility and tracking ability of four iSharest (TM) exchange-traded funds (ETFs). We use three measures: the premium and discount position, daily return, and tracking error, compared with conventional index mutual funds tracking the same index. Our results indicate that the ETFs are more likely to trade at a premium than at a discount, with comparatively large daily price fluctuations; and that both fund types have approximately the same degree of comovement with their benchmarks, but differ slightly in their tracking ability. On average, the Vanguard (TM) conventional index funds beat their corresponding iSharest (TM) competitors in terms of tracking error.