Frictional cost

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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
It was intended to: reduce frictional costs in the workers' compensation system; restrict inappropriate prescribing, especially those that relate to opioids; and ensure that injured workers receive medically necessary medications in a timely manner.
"We are delighted to be unveiling this exchange that will cut frictional costs and allow brokers, reinsurance and insurance companies access to the capital markets using blockchain," said David Edwards, chief executive officer of ChainThat.
This will provide investors the opportunity to move against volatility in the cryptocurrency markets without incurring the frictional costs of converting their holdings into fiat.
Technology can help in cutting frictional costs, creating efficient distribution channels, providing better services to re/insurers, and boosting policyholder retention and renewals.
There are a host of frictional costs, even before you get to the cost of communicating with participants.”
This could unnecessarily disrupt the marketplace, producing frictional costs that are not offset by commensurate benefits.
In addition to the cost of the insurance, life insurance has "frictional costs" that include premium taxes, costs of capital, insurance company margins, and legal and administrative costs.
The contract continues indefinitely, reducing frictional costs and eliminating time consuming administration at renewal.
A successful agreement on trade facilitation at the WTO Ministerial Conference in Bali will particularly benefit SMEs in developing countries, as their competitiveness currently suffers over-proportionally from the frictional costs of trade.
Despite the many good reasons to include user communities in their innovation processes, many companies fail to do so, suspecting that the frictional costs presented by these challenges will outweigh the potential benefits.
(1) Reduce frictional costs: Any discussion of barriers to catastrophe-bond market growth starts and ends with frictional costs--the fees a sponsor pays to complete a transaction.