Abstract
This study assesses the tracking performance of several futures-backed commodity exchange-traded funds (ETFs), single commodity exchange-traded notes (ETNs), and commodity sector ETNs relevant to agricultural market participants. We decompose total tracking errors into managerial and arbitrage components. Our findings reveal that the arbitrage process is the primary driver of observed tracking errors. ETNs tend to exhibit much larger tracking errors than ETFs. The tracking performance was not substantially different across agricultural and energy ETFs nor across single commodity and commodity sector ETNs. Using a GARCH model, the study reveals greater persistence of tracking errors for ETNs than ETFs. Roll dates do not significantly affect the volatility of tracking errors. On the other hand, trading volume, lagged ETF price volatility, and broad market volatility may result in poorer ETF tracking performance.
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