index add/drop drift
In plain terms
When a stock is added to or dropped from a major index, the forced buying or selling overshoots, and the price tends to snap back afterward.
How it works
Index membership changes force mechanical index-fund flow around the effective date. Petajisto documents that additions, having been bid up into inclusion, tend to reverse after the effective date, while drops, having been dumped, tend to rebound. This family trades only the post-effective drift, entering at the effective date + 1 trading day across SP500/NDX/SP400/SP600.
Data dependencies
- Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
- Index constituent events
A data feed this strategy reads, refreshed on its normal schedule.
Expected edge
Post-effective additions reverse and deletions rebound, a mechanical-flow mispricing the index-fund crowd creates.
Related families
When a stock is added to the S&P 500, index funds must buy it on the effective date — front-runners earn +8% by then. Symmetric -4% on deletions.
When a stock is newly added to the S&P 500, it tends to keep drifting up for a month or two after the official inclusion date — index-tilted funds keep buying, and analyst coverage expands. Go long for 30-60 days post-inclusion.
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.
Explore index add/drop drift on alphactor.ai
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