The index tracking strategies of passive and enhanced index equity funds

Frino, A; Gallagher, DR; Oetomo, T

The index tracking strategies of passive and enhanced index equity funds

Frino, A Gallagher, DR Oetomo, T

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Publisher:: Australian Graduate School of Management
Publication Type:: Journal Article
Citation:: Australian Journal of Management, 2005, 30 (1), pp. 23 - 55
Issue Date:: 2005-01

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Field	Value	Language
dc.contributor.author	Frino, A	en_US
dc.contributor.author	Gallagher, DR	en_US
dc.contributor.author	Oetomo, T	en_US
dc.date.issued	2005-01	en_US
dc.identifier.citation	Australian Journal of Management, 2005, 30 (1), pp. 23 - 55	en_US
dc.identifier.issn	0312-8962	en_US
dc.identifier.uri	http://hdl.handle.net/10453/10216
dc.description.abstract	This study represents the first empirical examination of the daily trading and portfolio configuration strategies of index and enhanced index equity funds. We document that passive funds benefit from employing less rigid rebalancing and investment strategies. During index revision periods, enhanced index funds commence portfolio rebalancing earlier than index funds, and employ more patient trading strategies. This activity translates into higher returns and lower trading costs for enhanced index funds. In cases where passive funds do not perfectly mimic the benchmark, passive funds exhibit a greater propensity to overweight stocks with higher liquidity, larger market capitalization and higher past performance. For nonindex portfolio holdings, enhanced funds exhibit a higher propensity to hold 'winners' and sell 'losers'.	en_US
dc.publisher	Australian Graduate School of Management	en_US
dc.relation.ispartof	Australian Journal of Management	en_US
dc.title	The index tracking strategies of passive and enhanced index equity funds	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	30	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	false	en_US
pubs.issue	1	en_US
pubs.volume	30	en_US

Abstract:

This study represents the first empirical examination of the daily trading and portfolio configuration strategies of index and enhanced index equity funds. We document that passive funds benefit from employing less rigid rebalancing and investment strategies. During index revision periods, enhanced index funds commence portfolio rebalancing earlier than index funds, and employ more patient trading strategies. This activity translates into higher returns and lower trading costs for enhanced index funds. In cases where passive funds do not perfectly mimic the benchmark, passive funds exhibit a greater propensity to overweight stocks with higher liquidity, larger market capitalization and higher past performance. For nonindex portfolio holdings, enhanced funds exhibit a higher propensity to hold 'winners' and sell 'losers'.

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http://hdl.handle.net/10453/10216