> The market, broadly, never priced in a rebalancing of the S&P 500

And if you had seen it what would have that pricing looked like?

> if you had seen it what would have that pricing looked like?

Look up rebalancing trades, or, less graciously, rebalancing front running. If the index is going to rebalance to include a new entrant, you'll see the other components trade down in anticipation. It's a very tight signal, and it wasn't present to any measurable degree for the S&P 500.

▲

kgwgk 3 hours ago | parent [-]

Again, what would it have looked like? What does “other components trade down in anticipation” mean when SPCX doesn’t even exist?

	▲	JumpCrisscross 2 hours ago \| parent [-]
		> What does “other components trade down in anticipation” mean when SPCX doesn’t even exist? Let's model an equal-weighted index with nine components, with each thus representing 1/9th of the index's allocation. You learn that a tenth member is going to be added. You don't know who it is. But you know that each of those nine will, after that member is included, represent 1/10th of the index's allocation versus the 1/9th they did before. You know a precise bucket of trades everyone following the index is going to mechanically enter into. Which means it behooves you to be on the other side of it. When rebalancing–or new inclusion–occurs, you see this pre-trading. Similar to merger arb. But much more clear as a signal because you see it in precise ratios across the index's members. It's difficult to pick up for small indices. But for something like the S&P 500, you'd expect to see someone selling those shares in anticipation, and, now that the rule isn't going into effect, someone dumping those shares in those ratios.