Abstract
Using 2,290 European equity and fixed income ETFs from 2001 to 2020, this paper studieshow replication method affects the tracking efficiencies of ETFs, especially during market crisis.There is no persistent evidence suggesting superior tracking performance of synthetic ETFsrelative to physically-replicated ones. I identify 119 indices simultaneously tracked by bothphysical and synthetic ETFs, and conduct difference-in-difference analysis around LehmanBrothers bankruptcy, sovereign debt crisis, and COVID-19 outbreak. Synthetic ETFs facesteeper declines in tracking efficiencies after a sudden increase in counterparty risk, but theyare shielded from liquidity shocks. There is a remarkable drop in the sensitivity of trackingperformance to market distress measures after the global financial crisis.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
