Frictional cost

Frictional cost

The difference between an index fund return and the index it represents. The typically lower rate of return from the fund results from transactions costs.

Frictional Cost

The difference between the return on an index fund and the index it tracks. For example, if the return on the S&P 500 for a period of time is 5% and the return on an index fund tracking the S&P 500 is 3%, the frictional cost is 2%. The return on the index fund is nearly always lower than the return on the index itself because of fees, expenses, and other costs associated with managing the fund. A high frictional cost, however, may indicate that the investment company is either charging excessive fees or the fund does not track the index as closely as is claimed.
References in periodicals archive ?
The catastrophe bond's current reliance on full collateralization serves as an impediment to deep market penetration, one that can only be overcome by substantial frictional cost advantages, far beyond those observed in today's marketplace.
As a software company, Peregrine understands that customers experience considerable frictional cost and operational challenges in integrating software applications and systems.
The frictional cost savings to ARCT will be approximately $15,000 per property or greater, since the lender is not recording mortgages or conducting property level due diligence.
We have always been very frugal about our facilities spending -- rent is simply a frictional cost that doesn't directly benefit our members.
9) Cummins, Lin, and Phillips (2005) find, on an empirical basis, that the Myers and Read way of allocating the frictional cost of capital is reflected in the insurance premiums observed.
As a workers' comp insurer, you may be providing essential services to your customers, but you do so at a frictional cost to these customers.
One frictional cost is management's unwillingness or inability to make optimal capital investment decisions.
With a more predictable portfolio, a company can raise its per-event retentions and garner frictional cost savings, while limiting the aggregate risk exposure in the portfolio and mitigating earnings volatility.
Clearnet will be an ideal partner to assist us in helping to lower the overall frictional cost of trading within the region.
Reinsurers and retrocessionaires incur tremendous costs because of the lack of standards, and the existence of the hub will drive standards to the marketplace and dramatically cut down on the frictional cost of the process," McCarthy said.
With a more predictable portfolio, a company can raise its retentions and garner frictional cost savings, while calling on aggregate protection that comes into effect once its risk tolerance level is exceeded.