Index fund trading costs are inversely related to fund and family size

John Adams, Darren Hayunga and Sattar Mansi

Journal of Banking & Finance, 2022, vol. 140, issue C

Abstract: Trading costs are a significant, but unobserved, drag on mutual fund performance. Because an index fund does not engage in securities selection or market timing, its trading costs are equivalent to its underperformance relative to its benchmark plus any securities lending income it earns. Using a large sample of index funds, we find positive returns to scale at the fund and family levels. We also find greater fund size helps alleviate the higher trading costs associated with illiquid equities and that net trading costs are comparable in magnitude to expense ratios.

Keywords: Economies of scale; Index funds; Trading costs (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426622001212
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:140:y:2022:i:c:s0378426622001212

DOI: 10.1016/j.jbankfin.2022.106527

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().