General Discussion AGY, page-8887

Info regarding a company getting an indice rebalance

INDEX FUND BUYING


Many mutual funds and exchange-traded funds (ETFs) are based on various stock indices. When an index is rebalanced, the funds must sell the deleted stocks and buy the added ones in their portfolios. Fund buying often causes short-term volume and price spikes in the newly-added stocks. After the flurry of buying activity generated by index rebalancing, the stocks go back to trading based on their fundamentals. However, investor inflows into mutual funds and ETFs can push up the prices of all stocks in an index, in the same way that investor outflows can push them down.

Front Running

An index may announce changes to its composition ahead of time. For example: On the 15th of the month an index publishes stock deletions and additions effective on the 1st of the following month. Index funds cannot make any changes to their portfolios until the index is officially changed, but speculators may start buying the new additions right away, reasoning that the funds will have to buy them later at any price. Speculator front running can cause the prices of stocks being added to increase prior to the official rebalancing date.