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Investopedia:
How Index Rebalancing Impacts the Stock Market

An immediate and visible impact of index rebalancing is increased trading activity. Institutional and retail investors react as index providers announce the stocks to be added or removed from an index.5

Chakrabarti, Rajesh, and et al. "Price and Volume Effects of Changes in MSCI Indices–Nature and Causes." Journal of Banking & Finance, vol. 29, no. 5, May 2005, pp. 1237-1264.

For example, asset managers who run index funds or index ETFs must scramble to adjust their portfolios to match the new index composition, increasing the trading of specific stocks. This surge in trading can be significant, and it's often seen as a short-term opportunity for traders specializing in arbitrage.

An increase in trading activity often leads to volatility for the stocks involved in the rebalancing. Shares newly added to an index often have a price boost as index-following funds buy them. Conversely, those being removed may dip in price as they are sold off. While these price changes are generally temporary, they can present challenges and opportunities for active investors.6