Institutional S&P 500 Index Mutual Funds as Financial Commodities: Fact or Fiction?
26 Pages Posted: 23 Apr 2008 Last revised: 3 Mar 2017
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Institutional S&P 500 Index Mutual Funds as Financial Commodities: Fact or Fiction?
Institutional S&P 500 Index Mutual Funds as Financial Commodities: Fact or Fiction?
Date Written: February 1, 2008
Abstract
Given their simplicity and presumed commodity-like nature, institutional S&P 500 Index mutual funds should be subject to active price competition, resulting in only nominal size-adjusted differences in expenses. We find a wide disparity among fund expense ratios and their corresponding characteristics and performance.
Overall, the evidence suggests some price competition among institutional S&P 500 Index funds, but not to the extent that they may be considered financial commodities. One explanation for the existence of high-priced index funds is that they tend to require significantly lower minimum initial purchases. Our data do not support the notion that institutional investors buy high-priced S&P 500 index funds to access broader or lower-cost investment services from fund families. We conclude the market for institutional S&P 500 Index funds is not completely homogenous.
Keywords: mutual funds, institutional index, financial commodity, price competition, minimum initial purchase
JEL Classification: G2, G23, G28
Suggested Citation: Suggested Citation
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