Hello r/Stocks,
I have a question that I am hoping someone with knowledge about how ETF rebalances work.
From what I gather, when a new stock is added to something like the S and P 500, there is an effective date given during the press release of the S and P Global.
During the time from the press release and the effective date, is the S and P 500 index having funds reconstitute their compositions to match the % of the newly added fund? Does this reconstitution happen during the duration from the time of announcement to the inclusion date, or does it happen before market opens on inclusion date? But if it happens before market opens, We should expect to see massive volume and price going up due to the new demand coming in. Often times, we do see massive volume, but the stock may trade sideways or even go down. This leads me to think the volume prior to the inclusion date are the index funds buying.
I know there is also a rebalance date. This is where I am a little confused. During rebalance dates, is that also when funds are forced to change their portfolio to match the % composition of the index representation? Or is it just an audit when that day arrives where funds should already be in the correct positional % of the new inclusions.
I hope my question makes sense, and thank you for anyone who has any information / understanding of this for answering.
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