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 ?
Global funds transaction network and Future50 FinTech pioneer seeks to further reduce frictional cost of trading mutual funds, from fund manufacturer to end investor, by placing marketplace on a blockchain, the company said.
That allows us to operate at a much lower price point, reducing frictional cost.
Our analysis demonstrates that this feature places limits on catastrophe bond penetration, even if the structure possesses frictional cost advantages over reinsurance.
My concern with the regulation is not disclosure; it is the frictional cost of disclosure and the unintended consequences of compliance.
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.
A great example of a frictional cost is the loss load on many retrospectively rated reinsurance contracts.
Sustained competition reduces the frictional cost of trading, creates trading opportunities through price discrimination and stimulates equity turnover in Europe.
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.
One frictional cost is management's unwillingness or inability to make optimal capital investment decisions.