Event-Driven#361tier 2experimental liveNew

`index deletion reversal long`

cadence: Eventdata: lowlong only

2004

Chen, H., Noronha, G., Singal, V. (2004). "The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation." Journal of Finance, 59(4), 1901-1929.

Read the paper →

What it checks

When a stock is removed from a major index, the forced selling temporarily pushes the price too low. Wait 5 days for the press to finish, then go long for 2-6 months as the price partially recovers.

Mechanism

Stocks removed from major indices experience mechanical selling pressure from index funds plus signaling-driven selling from discretionary investors, depressing the price below fundamental value temporarily. The deletion drop partially reverts over 60-180 days post effective date, with average +3-6% LONG-side abnormal return.

No production champion data for this family yet. Stats appear once the discovery pipeline promotes at least one strategy with this family tag, or once a multi-family blend that includes it earns a champion slot.

Signal rule

Removal from a major index (SP500/Russell/MSCI/NDX) -> LONG at effective_date + 5 trading days (press buffer) + T+1; hold 60/90/180 trading days.

Data dependencies

daily_prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
index_rebalance_events
Worker data table — see services/worker schema.

Expected edge

Paper alpha: +3-6% over 60-180d
Paper window: T+6 to T+180d

+3-6% on the 60-180d reversion long (CNS 2004).

Example tickers where this is likely to fire

MTW FRC SIVB LNC NWL

Illustrative only — the signal fires based on the live data, not a fixed list.

Related families

sp500 inclusion driftEvent-Driven

Newly-included S&P 500 names enjoy persistent positive drift well past the index-fund mechanical buying window. Chen-Noronha-Singal document +1-2% gradual drift over 30-60 days post-effective as discretionary index-tilted funds rebalance and the new constituent earns analyst coverage. Distinct from the existing index_rebalance_drift family which captures the announcement-to-effective short-term front-run + reversal.

index rebalance driftEvent-Driven

When a stock is added to the S&P 500, index funds must buy it on the effective date. The announcement (typically 3-5 trading days before) triggers a front-running rally averaging +8% by effective date. Deletions show a symmetric -4% drop. Both effects partially reverse in the 20 days after effective date. We trade adds long from (eff_date − 4d) through eff_date and short the reversal for 10-21d after; deletions get a 5d-lagged long for 21-63d on the overdone fade.

earnings revision reversalMacro

Analyst-revision drift decays sharply — most return in first 30 days.

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index deletion reversal long