Analysis of SOXX tracking error

The purpose of this study is to add to the existing knowledge in the field of ETF performance by examining the performance of a relatively new equity ETF-SOXX - the iShares PHLX SOX Semiconductor Sector Index Fund relative to the performance of the oldest and most popular ETF, the Spider. Our study examines the periods of and around the Great Recession. When tracking error is examined in absolute terms the SOXX tracking errors are ten times and four times higher in the Before and During periods than the Spider tracking errors. In the After period the SOXX tracking error becomes negative, which suggests destruction of value in general and relative to the larger ETF. However, when we examine the temporal behaviour of these two ETFs, tracking errors, we document some similarities. We document that for both SOXX and Spider ETFs the simple AR(1) model specification best fits the behaviour of the tracking error for all three periods and that the AR(1) coefficients are similar.