“Do you believe the ETF is leading the index or vice versa?”

Eoin Treacy's view Thank you for the attached chart and this question which others may also have an interest in. The first issue to consider is that the Market Vectors Indonesia ETF tracks the Market Vectors Indonesia Total Return Index not the Jakarta Composite Index.

Since one is a total return index and the other a nominal index it would be unreasonable to expect the ETF to track the Composite Index exactly. An additional consideration is that the ETF trades approximately 180,000 shares per day. Astra International, the largest weighting in the Composite Index, trades approximately 2.5 million shares per day. Generally speaking a less liquid derivative such as an ETF is unlikely to be a lead indicator. I wonder if the heightened volatility of the ETF since November relative to the Index has to do with illiquidity or redemptions?