Index inclusion effect
MarketsDefinition
When a stock is added to a major index (S&P 500, Russell 2000), it must be bought by every fund tracking that index. Creates a price pop ahead of inclusion as front-running takes place, with mean-reversion in the months after.
Effect has weakened over time as the trade has become well-known. Tesla's 2020 S&P 500 inclusion — the biggest ever, $80B+ rebalancing — barely produced a pop because everyone was positioned.
Effect has weakened over time as the trade has become well-known. Tesla's 2020 S&P 500 inclusion — the biggest ever, $80B+ rebalancing — barely produced a pop because everyone was positioned.