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.

Calastone completes first phase of blockchain placing

That allows us to operate at a much lower price point, reducing frictional cost.

Sharing economy: Blue Marble seeks profitability through cost sharing

Our analysis demonstrates that this feature places limits on catastrophe bond penetration, even if the structure possesses frictional cost advantages over reinsurance.

Catastrophe bonds, reinsurance, and the optimal collateralization of risk transfer

My concern with the regulation is not disclosure; it is the frictional cost of disclosure and the unintended consequences of compliance.

Producer compensation disclosure

As a software company, Peregrine understands that customers experience considerable frictional cost and operational challenges in integrating software applications and systems.

PEREGRINE SYSTEMS LAUNCHES INTEGRATION ADAPTER FACTORY BUSINESS

A great example of a frictional cost is the loss load on many retrospectively rated reinsurance contracts.

The ins and outs of reinsurance commutations: what to consider when cedents and reinsurers unwind their relationship

Sustained competition reduces the frictional cost of trading, creates trading opportunities through price discrimination and stimulates equity turnover in Europe.

Evolving the DNA

The advent of browser-based technologies and data exchange protocols promised to overcome the frictional cost of doing business across insurers, brokers and reinsurers.

Why exchanges crashed: exchanges were tried in every industry and the big players like Ariba and Freemarkets are today trading at a fraction of their value five years ago, But these firms were successful mostly in the trading of commodities and raw materials, not reinsurance

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.

Capital allocation for insurance companies--what good is it?

The share of frictional cost in the total cost of insurance ranges anywhere from 5 percent to 40 percent, Landry says.

Taxiing for takeoff: recent applications to fund benefits captives have been approved in record time. Several pending applications before the U.S. Department of Labor will signal to the markets just how serious regulators are about approving alternative finance vehicles

One frictional cost is management's unwillingness or inability to make optimal capital investment decisions.