Which is the most appropriate measure for evaluating how closely an index fund is tracking its benchmark?
A
Treynor ratio
B
Tracking error
C
Total Expense Ratio (TER)
D
Assets Under Management (AUM)
Correct Option:
B
Explanation
Tracking error measures the extent to which an index fund's returns deviate from the returns of its benchmark index. A lower tracking error indicates that the fund is replicating the benchmark more closely and efficiently.
