@Gharp or anyone else who has first-hand knowledge of these things. What is the exact procedure for determining the price of these rebalancing transactions? I imagine short-sellers purchase call options from the index funds sometime in advance (at least, for a large chunk of the short-sellers exposure), otherwise, the short-sellers could get severely caught out (i.e. if the index funds decide to sell at a higher price to a third party). Also, I imagine the index funds aren't stupid enough to use the closing price on the final day alone, because it would be too easily manipulated by the short-sellers (in the manner gharp suggests). Maybe a five-day VWAP? Just trying to understand the exact mechanics, as am I pondering whether to join the short selling for other stocks exiting the MSCI and ASX100/200/300 in the future. Seems like easy money for the short-selling funds who seem to specialise in these types of events (at the expense of investors with their money in the index funds).
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