Correspondence: Jack W. Aber, School of Management, Boston University, 595 Commonwealth Avenue, Boston, Massachusetts 02215, USA. E-mail: jackaber@bu.edu, Web: Http://management.bu.edu

¹is Professor of Finance and Chair of the Finance Department at Boston University School of Management. Dr Aber's research interests span financial instruments, institutions and markets.

²was awarded the PhD in economics from Boston University College of Arts and Sciences in 2008. She is a specialist in economic history and applied econometrics.

³is Senior Advisor to the Chairman and Senior Vice President at the Bank for Investment and Development of Vietnam. He was recently a senior fellow at Harvard Kennedy School and a Hubert H. Humphrey Fellow at Boston University under a Fulbright exchange program. Dr Can holds an MBA (Finance) and a DBA (Finance) from Monash University, Australia.

Received 15 March 2009; Revised 15 March 2009.

Abstract

In this paper, we examine the price volatility and tracking ability of four iShares™ exchange-traded funds (ETFs). We use three measures: the premium and discount position, daily return, and tracking error, compared with conventional index mutual funds tracking the same index. Our results indicate that the ETFs are more likely to trade at a premium than at a discount, with comparatively large daily price fluctuations; and that both fund types have approximately the same degree of comovement with their benchmarks, but differ slightly in their tracking ability. On average, the Vanguard™ conventional index funds beat their corresponding iShares™ competitors in terms of tracking error.