Spin Off Drift
In plain terms
When a company spins off a division, both the parent and the new spin-off tend to outperform their industries for 6-12 months. Index funds dump the new spin-off mechanically, creating a price discount that mean-reverts.
How it works
Spun-off subsidiaries outperform their industries by 10-15% in the first year post-separation; parents outperform by 5-8% over the same window (Cusatis-Miles-Woolridge 1993 JFE; McConnell-Ovtchinnikov 2004). Economic story (Krishnaswami-Subramaniam 1999): separation removes information asymmetry and inefficient capital allocation; index funds force-sell the newly-distributed sub-stock, creating non-fundamental supply overhang. Modern replications (Veld-Veld-Merkoulova 2009; Boreiko-Murgia 2017) confirm persistence 12-24 months.
Data dependencies
- SEC 8k events
Item-coded 8-K events (1.01 material agreements, 4.02 non-reliance, etc.).
Expected edge
- Reported return
- 10-15% year-1 abnormal returns in the 1980s sample; 3-7% modern OOS
- Tested over
- 1965-1988 (in-sample); 1990-2018 OOS replications
Cusatis-Miles-Woolridge 1993: 10-15% abnormal year-1 returns; modern OOS replications 3-7% ann.
Example tickers where this is likely to fire
Illustrative only, the signal fires based on the live data, not a fixed list.
Related families
When a ticker files an 8-K signaling an M&A deal, the stock drifts directionally for 1-3 months as the market re-rates it.
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.
Take any base trend signal and turn it OFF for several days around earnings dates, where price reactions are too noisy/unfair to the rule.
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