Costly Index Investing in Foreign Markets
This article studies trading behavior and performance of foreign investors by level of active management
Abstract
We study trading behavior and performance of foreign investors by level of active management. Using a comprehensive Colombian dataset with complete transaction records, we find that aggregate underperformance of foreign investors is attributable to passively-managed foreign funds. 皇冠体育appse funds pay higher prices to increase the speed of their trades in order to accommodate daily flows proportionally to their benchmark index. Higher transaction costs occur on days when they trade multiple stocks in the same direction and make large trades near market closing. 皇冠体育app findings highlight the potential costs of index investing in developing countries or in securities with low trading activity.
This is an output of the World Bank鈥檚 Strategic Research Program
Citation
Pedraza, Alvaro, Fredy Pulga, and Jose Vasquez. (2019), 鈥淐ostly Index Investing in Foreign Markets, Journal of Financial Markets, https://doi.org/10.1016/j.finmar.2019.100509.