Two weeks ago, I wrote a post on research that showed that cash flows into index funds distort the relative momentum between stocks that are included in the index and those that are not as well as between larger and smaller stocks in that index.
Really interesting article - as per usual Joachim, but it did lead me to think if spreads are different between index and non-index constituents. The round-trip cost might be cheaper to trade stocks that are in the index and volumes could have an impact from a liquidity and portfolio management perspective. This could then have knock-on impacts from the investment risk departments with regard to tracking error, tracking tolerances and the like. Also, I wonder if any work has been done relating to the derivatives side of things and the counterparty risks associated.
Really interesting article - as per usual Joachim, but it did lead me to think if spreads are different between index and non-index constituents. The round-trip cost might be cheaper to trade stocks that are in the index and volumes could have an impact from a liquidity and portfolio management perspective. This could then have knock-on impacts from the investment risk departments with regard to tracking error, tracking tolerances and the like. Also, I wonder if any work has been done relating to the derivatives side of things and the counterparty risks associated.