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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?

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^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.

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    $\begingroup$ Not to mention that there is a small negative drift on SPY because of management costs. $\endgroup$ – wsw Dec 21 '15 at 0:36
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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?

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^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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