As the sibling comment to mine says, predictive arbitrage will already have accounted for the price shift by the time the index inclusion/exclusion actually hap

As the sibling comment to mine says, predictive arbitrage will already have accounted for the price shift by the time the index inclusion/exclusion actually happens. That arbitrage means the price change effectively gets smeared over time, as the probability of being included in the index rises. The price effect of index inclusion isn't a binary in-or-out, it's a probability cloud based on speculation. Consider a random company like say Dropbox, and take a wild guess that they might have a 2% chance of making the S&P 500 in the foreseeable future. That small chance is already built in to the current stock price, assuming efficient enough arbitrage. If that perceived chance were to rise, so would the stock price, and as it approached 100% would converge to the post-index inclusion value. Stated another way: By the time an index fund needs to acquire a particular stock, enough arbitrageurs and market-makers have already acquired it that they're willing to sell at the price the index fund will pay. There isn't really a loss for the index fund to absorb. If there is, it shows up as tracking error in the fund's value not perfectly replicating the index, which is a common occurrence for plenty of reasons.