Index fund hidden costs

There're 3 main factors:

1. Adverse Selection
2. Price Impact
3. Mean Reversion

Adverse selection occurs when index funds trade in response to market changes, often buying stocks that firms issue when they believe their prices are high, and selling when they think prices are low.

This behavior can lead to underperformance, especially during initial public offerings (IPOs) and other market transitions.

Price impact refers to the predictable buying and selling of stocks by index funds that can temporarily inflate or deflate stock prices, resulting in buying high and selling low.