Why SPY and the S&P 500 Price Index Have Different Returns
Summary
The discussion explains a central reason SPY and the S&P 500 index ticker can diverge: the index is a price index that excludes dividends, while SPY owns shares of the constituent companies and receives their dividends. SPY holds the resulting cash during the quarter and distributes it to shareholders on a quarterly schedule; this creates a changing cash balance in the fund rather than continuous dividend reinvestment. As a result, comparing SPY’s market price directly with the index does not compare equivalent return measures.
One reply argues that the remaining difference between a total-return index and SPY’s dividend-adjusted return may largely reflect trading costs and fees, with the timing of dividend distributions having a smaller effect. That estimate is tentative, and the thread does not provide a rigorous attribution of tracking differences. A later comment incorrectly asserts that the index must include dividends, illustrating why the index methodology should be checked. The question about Yahoo’s reported index volume is left unanswered.
Key ideas
- The S&P 500 ticker discussed is a price index and does not include dividends.
- SPY receives dividends from its holdings and distributes accumulated cash quarterly.
- Comparing SPY with a price index mixes different return conventions.
- Fees, trading costs, and dividend timing may contribute to differences from a total-return benchmark.
- The reported volume for the index is not explained in the discussion.
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Full text
# Why the difference between SPY and ^GSPC? # Why the difference between SPY and ^GSPC? Look at SPY vs ^GSPC -- the difference seems bigger than can be explained by the ETF fees. Is it only because of SPY re-invests dividends quarterly or something else? Since `^GSPC` is a total return index, it should be replicable in principle, correct? Additionally, Yahoo reports a huge volume for ^GSPC, how is this calculated? ## Answer by Alex C (score 22, accepted) https://quant.stackexchange.com/a/18207 ^GSPC is a price index, not a total return index, so it does not include dividends. SPY is an ETF that holds the underlying stocks. When it receives a dividend it keeps it in a cash account (which of course affects the NAV and market value of SPY shares) until the end of the quarter. At that time (on the 3d friday of Mar Jun Sep or Dec) it will pay out the cash to SPY shareholders. The cash account is now empty and the process repeats for the next quarter. So there is a periodic build up and then disbursal (not reinvestment!) of dividends. ## Answer by george genneken (score 0) https://quant.stackexchange.com/a/42534 sp500tr vs spy vs spy total return is interesting. using 11/6/17 to 11/5/18 sp500tr increased by 1.0843. spy increased by 1.05617 per yahoo. using yahoo historical data spy return with dividends it increased by 1.0754. the difference between sp500tr and spy/tr, 0.0089, is likely mostly due to costs (such as trading) and fees. the expense ratio is listed as 0.09% or 0.0009. as spy holds dividends for a time before issuing it may impact, but this should be very minor. so the bulk of costs should be mostly from trading. are there any other cost factors? ## Answer by dersu (score -3) https://quant.stackexchange.com/a/22416 ^GSPC must be a total return index. The difference between it and spy is so small over time that dividends must be included.
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