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Their conclusions: - an increase in migrations over time from the S&P MidCap Index - an overall increase in the market’s ability to provide liquidity to index
by thenerdhead 4y ago
Their conclusions:
- an increase in migrations over time from the S&P MidCap Index
- an overall increase in the market’s ability to provide liquidity to index changes
What about the fact that there are more activities of additions/deletions to the S&P 500 given how much more competition there is today versus decades ago?
You will see anywhere from 15-20 additions in recent years compared to 3-5 additions 30 years ago. Their figure 1 demonstrates this well:
https://www.nber.org/system/files/working_papers/w30748/w30748.pdf https://www.nber.org/system/files/working_papers/w30748/w307...
That to me just says the stock added to the S&P 500 has less time to actually accumulate said wealth to stay competitive on the top 500 list while the 1% of companies continue to reap the effect of it. Maybe that has something to do with the similar benefits of an index fund, the less activity, the more money you accumulate due to time in the market.
- RC_ITR 4y agoI think an addition to the liquidity point: Once something becomes "common knowledge" in the stock market, it looses all predictive power. In this example, you could trade on the index inclusion because it observably happened, but market participants didn't respond. Now, everyone expects the effect to happen, so it's just another thing 'baked in' to pricing.
- malshe 4y agoThe returns are on a short period. From the paper: Our main interest is the total return, defined as the cumulative market-adjusted return from the last trading day before the announcement to the first trading day after the implementation. This has nothing to do with the "time in the market" as you mention above.
- thenerdhead 4y agoYeah so if people can profit short term off index rebalancing: https://archive.is/54uIY https://archive.is/54uIY Then stocks that have more "time on the S&P 500/index" are prone to survive and see higher returns also over the long term.