Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JBIS
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Index Investing
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Index Investing

The Journal of Index Investing

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JBIS
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

The Weakening Index Effect

Anthony A. Renshaw
The Journal of Beta Investment Strategies Summer 2020, 11 (1) 17-31; DOI: https://doi.org/10.3905/jii.2020.1.086
Anthony A. Renshaw
is the director of index solutions for Qontigo in New York, NY
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

The Index Effect has weakened significantly since 2011. The Index Effect is the phenomenon where stocks that are added to an index experience positive excess returns in the days before being officially added, while stocks that are removed from an index experience negative excess returns. The weakening of the Index Effect has been pronounced for large- and mid-cap stocks, though it still can be observed in many indexes with small-cap stocks. The article also examines the importance of several other aspects related to the Index Effect, including illiquidity and unscheduled rebalances. The weakening of the Index Effect has occurred concurrently with a substantial increase in passive investing. One potential explanation for the weakening is that the ETF market makers (e.g., authorized participants) trade on price disparities as soon as they occur, eliminating any sustained positive or negative price movements. If true, this would be evidence that ETF trading adds liquidity to the market.

TOPICS: Mutual fund performance, passive strategies, exchange-traded funds and applications

Key Findings

  • • This article examines the Index Effect, in which stocks that are added to or dropped from an index experience positive/negative excess returns in the days immediately before they are officially added/dropped. The Index Effect has weakened significantly since 2011.

  • • The Index Effect can still be found in indexes with small-cap stocks and those with notably illiquid names.

  • • One potential explanation for the weakening of the Index Effect is that the ETF market makers trade on price disparities as soon as they occur, eliminating any sustained positive or negative price movements. If true, this would be evidence that ETF trading adds liquidity to the market.

  • © 2020 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Index Investing: 11 (1)
The Journal of Beta Investment Strategies
Vol. 11, Issue 1
Summer 2020
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Index Investing.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
The Weakening Index Effect
(Your Name) has sent you a message from The Journal of Index Investing
(Your Name) thought you would like to see the The Journal of Index Investing web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
The Weakening Index Effect
Anthony A. Renshaw
The Journal of Beta Investment Strategies May 2020, 11 (1) 17-31; DOI: 10.3905/jii.2020.1.086

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
The Weakening Index Effect
Anthony A. Renshaw
The Journal of Beta Investment Strategies May 2020, 11 (1) 17-31; DOI: 10.3905/jii.2020.1.086
del.icio.us logo Digg logo Reddit logo Twitter logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • THE INDEX EFFECT FOR A CROSS-SECTION OF INDEXES
    • DO ILLIQUID NAMES EXHIBIT A STRONGER INDEX EFFECT?
    • SCHEDULED VS. UNSCHEDULED REBALANCES
    • A RELATED EXAMPLE: GICS CHANGES
    • DISCUSSION AND CONCLUSION
    • ACKNOWLEDGMENTS
    • ADDITIONAL READING
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
reply@pm-research.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Sign In
  • Update your profile
  • Give us your feedback

© 2023 With Intelligence Ltd | All Rights Reserved | ISSN: 2154-7238 | E-ISSN: 2374-135X

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies