Analysis of the static management strategy of the investment portfolio using the error-tracking: a comparative study
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Abstract
The study sought to analyze the strategy of static management of the investment portfolio using the tracking error, by applying it to a sample of Arab index funds and comparing them with their American counterparts for the period from 1/4/2018 to 12/31/2020 and with weekly observations. In order to reach the goal of the study and test its hypotheses, several methods were used to estimate the tracking error, which are both the absolute deviation denoted by TE1, the square mean denoted by TE2, the mean of the absolute deviation symbolized by TE3 and the standard deviation symbolized by TE4. In addition to the one-factor model. The study found that American index funds outperformed their Arab counterparts in tracking the index by achieving low tracking errors. This is a result of the large and fundamental difference in the markets in which these funds trade in terms of their degree of development, efficiency and depth, as well as the variation in the ability of the departments of these funds to track. The results revealed that the methods and models used are not complete alternatives, but rather that one of them complements the other. The study recommended the need to pay attention to the Arab financial markets and increase their efficiency and work to develop the quality of managing their ETFs and work to establish funds for the indexes traded in other Arab countries such as Iraq because of their importance in empowering small investors to hedge risks.
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