We adopt 72 passive equity exchange-traded funds (ETFs) from the Chinese A-share market to examine the size and time-varying characteristics of their tracking errors, identify their determinants, and gain insight into the persistent and positive excess returns. Net asset value traces index better than closing price does; surviving ETFs perform better than delisted ones. The common determinants are fund expenses, liquidity and volatility of the index. Many determinants asymmetrically influence the tracking errors in bull and bear markets. Further examination based on the capital asset pricing model indicates persistent positive excess return is a result of A-share market inefficiency.
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