Publications
Publications
- 2022
Excess Reconstitution-Day Volume
By: Alex Chinco and Marco Sammon
Abstract
FTSE/Russell reconstitutes its Russell 1000 and 2000 indexes on the last Friday of June each year, and it announces which stocks will switch indexes roughly two weeks in advance. Exchange-traded funds (ETFs) must do all of their rebalancing on Russell’s reconstitution day, but other kinds of funds (mutual funds,
pension funds, endowments, etc) could use this two-week period to gradually rebalance. Textbook models suggest that some non-ETFs should take advantage of this opportunity. Yet index-switcher volume does not increase at all during the period prior to Russell’s reconstitution day. It suddenly spikes on reconstitution
day with 3:15x more volume than can be explained by ETF rebalancing alone. The existence of so much excess reconstitution-day volume suggests that there are important economic forces missing from existing models of index investing. It is as if all Russell-linked funds are trading like ETFs even though most of these
funds do not face the same end-of-day portfolio constraints that ETFs do.
Keywords
Indexing; Passive Investing; Exchange-traded Funds (ETFs); Russell Reconstitution Day; Trading Volume; Information-based Asset Pricing; Investment; Investment Funds; Asset Pricing
Citation
Chinco, Alex, and Marco Sammon. "Excess Reconstitution-Day Volume." Working Paper, February 2022.