Testing the Tracking Efficiency of Commodity Exchange Traded Funds (ETFs) across the Bearish and Bullish Market Regimes: Evidence from Indian Gold ETFs

Commodity exchange traded funds (ETFs) help investors gain exposure to the underlying commodity in digital form. The present article attempts to examine the performance characteristics of 12 gold ETFs in India across the bear and bull markets. ETFs’ sensitivity to their underlying asset (gold prices) is observed to be lower during the bearish market regime, and, as such, the tracking error is found to be higher during the bearish market regime. Further, volume is reported to bear a significant positive impact on the tracking ability of ETFs whereas volatility and pricing deviation are found to negatively impact the tracking ability of ETFs.