2,000,000,000 the estimated annual dollar cost to fund managers tracking the S&P500 and Russell 2000 indices because of index changes, according to an academic study by professor Vijay Singal, of Virginia Tech, Honhui Chen, assistant professor at the University of Central Florida, and professor Gregory Noronha, of the University of Washington at Tacoma.
The losses to fund managers occur as existing stocks suffer declines and stocks joining an index rise around announcements. It means that an index fund has to pay more for the stocks it adds and that it earns less for the stocks it has to sell.
The losses are an unexpected consequence of the evaluation of index fund managers on the basis of tracking error.
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