The Diminished Effect of Index Rebalances

30 Pages Posted: 19 May 2017  

Konstantina Kappou

University of Reading - ICMA Centre

Date Written: May 19, 2017

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 10 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.

Keywords: index rebalancing, passive investment, S&P 500, additions, index funds

JEL Classification: G14

Suggested Citation

Kappou, Konstantina, The Diminished Effect of Index Rebalances (May 19, 2017). Available at SSRN: https://ssrn.com/abstract=2971211 or http://dx.doi.org/10.2139/ssrn.2971211

Konstantina Kappou (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 7793405682 (Phone)
+44 1189314741 (Fax)

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