Our study shows that an approach constrained to rebalancing on the day an index undergoes reconstitution may suffer from multiple sources of price pressure.
Key Takeaways:
Key Takeaways:
- Index-tracking funds seek to match an index’s performance. This goal may lead to constraints and implementation costs that hurt returns.
- Our 10-year study identifies significant costs for index-tracking funds from demanding immediacy during index reconstitution events.
- A better investment approach would be a daily process that spreads turnover across all trading days, avoiding the costs of demanding immediacy and allowing for a consistent focus on stocks with higher expected returns.
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