Title

Index Changes And Losses To Index Fund Investors

Abstract

Because of arbitrage around the time of index changes, investors in funds linked to the S&P 500 Index and the Russell 2000 Index lose between $1.0 billion and $2.1 billion a year for the two indices combined. The losses can be higher if benchmarked assets are considered, the pre-reconstitution period is lengthened, or involuntary deletions are taken into account. The losses are an unexpected consequence of the evaluation of index fund managers on the basis of tracking error. Minimization of tracking error, coupled with the predictability and/or pre-announcement of index changes, creates the opportunity for a ivealth transfer from index fund investors to arbitrageurs. © 2006, CFA Institute.

Publication Date

7-1-2006

Publication Title

Financial Analysts Journal

Volume

62

Issue

4

Number of Pages

31-47

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.2469/faj.v62.n4.4185

Socpus ID

33845706969 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/33845706969

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