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The diminished effect of index rebalances

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  • Konstantina Kappou

    (University of Reading)

Abstract

The author revisits the strategy of trading S&P 500 index re-compositions under the pre- and post-crisis financial environments, proving that the return structure has significantly changed. The results show for the first time that there are currently no tradable abnormal returns between announcement and event dates in the post-crisis sample period, indicating smoother rebalancing mechanisms by bank’s client facing desks and better services for passive end-investors. The newly added firms inflate the S&P 500 index by less than ten basis points per year. The results could be attributed to improved execution algorithms used by the banks and potentially to the new regulatory reforms in the sector, which prevents financial institutions from taking large trading positions with their balance sheets.

Suggested Citation

  • Konstantina Kappou, 2018. "The diminished effect of index rebalances," Journal of Asset Management, Palgrave Macmillan, vol. 19(4), pages 235-244, July.
    • Handle: RePEc:pal:assmgt:v:19:y:2018:i:4:d:10.1057_s41260-018-0077-8
    DOI: 10.1057/s41260-018-0077-8
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    References listed on IDEAS

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    Cited by:

    1. Friedrich-Carl Franz, 2020. "Forecasting index changes in the German DAX family," Journal of Asset Management, Palgrave Macmillan, vol. 21(2), pages 135-153, March.

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    More about this item

    Keywords

    Index rebalancing; Passive investment; S&P 500; Additions; Index funds;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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