4 ms·

Strongly recommend reading this linked paper, written by CRSP folks: https://indexes.morningstar.com/insights/analysis/bltcd8e699d7880bc4e/mega-ipos-impact-on-

Strongly recommend reading this linked paper, written by CRSP folks: https://indexes.morningstar.com/insights/analysis/bltcd8e699d7880bc4e/mega-ipos-impact-on-the-crsp-us-market-indexes https://indexes.morningstar.com/insights/analysis/bltcd8e699... These IPOs will have minuscule impact on the indexes initially. They will have a big impact if they can maintain share price in the first ranking/reconstitution after the lockup period expires.

BoggleOhYeah 4mo ago
They will have a big impact if they can maintain share price AND the float increases due to the lockout period expiring (ie. pre-IPO owners selling off shares). I'd like to know how the CRSP/Morningstar folks feel about the interesting lock-up period rules that Elon has inserted into the SpaceX IPO and how that jives with their analysis.
largbae 4mo ago
Won't the lockup expiry increase the float on these already-included companies, forcing mechanical buying by all the very large pool pool of folks holding these index funds? Thus creating forced buyers to maintain said share price?
- stockresearcher 4mo ago
  Every single index fund is different. They all have publicly available methodology guides; you can read them to understand how it works and to model various scenarios. This particular one, the CRSP total market - which Vanguard uses for VTI - has a “modern” methodology that is thought to be very good. Once every three months they re-rank the entire market and assign weights based on the market as of a particular point in time. Then, a randomly-chosen number of days later, the fund (Vanguard) begins a weeklong reconstitution process in which they buy and sell stocks to reflect the new weights. It is intentionally a weeklong process so that the market is setting prices and not Vanguard with the size of their orders. The lockup expiry happens, the market reacts, the market is re-weighted, the index reconstitutes. In that order. The price of the stock has to survive the increased float to force the index fund to buy lots more shares.

BoggleOhYeah 4mo ago

They will have a big impact if they can maintain share price AND the float increases due to the lockout period expiring (ie. pre-IPO owners selling off shares). I'd like to know how the CRSP/Morningstar folks feel about the interesting lock-up period rules that Elon has inserted into the SpaceX IPO and how that jives with their analysis.

largbae 4mo ago

Won't the lockup expiry increase the float on these already-included companies, forcing mechanical buying by all the very large pool pool of folks holding these index funds? Thus creating forced buyers to maintain said share price?

stockresearcher 4mo ago
Every single index fund is different. They all have publicly available methodology guides; you can read them to understand how it works and to model various scenarios. This particular one, the CRSP total market - which Vanguard uses for VTI - has a “modern” methodology that is thought to be very good. Once every three months they re-rank the entire market and assign weights based on the market as of a particular point in time. Then, a randomly-chosen number of days later, the fund (Vanguard) begins a weeklong reconstitution process in which they buy and sell stocks to reflect the new weights. It is intentionally a weeklong process so that the market is setting prices and not Vanguard with the size of their orders. The lockup expiry happens, the market reacts, the market is re-weighted, the index reconstitutes. In that order. The price of the stock has to survive the increased float to force the index fund to buy lots more shares.