Part 2/11:
Index funds were introduced in the mid-1970s by pioneering firms like Vanguard, targeting individuals who wanted to capture the average market returns without the burden of high fees typically associated with active management. The emergence of index funds was grounded in observations that most active managers failed to outperform market indexes after accounting for their higher fees. This gave rise to the efficient market hypothesis and marked index funds as a smart choice for a diverse range of investors.
Hidden Costs Associated with Index Fund Trading
The hidden costs of index funds can be traced back to three main sources encountered during trading: adverse selection, price impact, and mean reversion.