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The diminished effect of index rebalances

Konstantina Kappou ()
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Konstantina Kappou: University of Reading

Journal of Asset Management, 2018, vol. 19, issue 4, 235-244

Abstract: 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.

Keywords: Index rebalancing; Passive investment; S&P 500; Additions; Index funds (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2018
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