Index rebalancing and stock market composition: Do indexes time the market?

• 成果类型: Article
• 署名作者: Sammon, Marco; Shim, John J.
• 署名单位: Harvard University; University of Notre Dame
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2025.104229
• 发表日期: 2026-03
• 页码: 104229
• 关键词: Stock indexes; Index providers; INDEX FUNDS; Rebalancing; ISSUANCE; Buybacks; demand curves; share; returns; investors; issues

摘要

Value-weighted indexes must rebalance in response to stock market composition changes, e.g., issuance, buybacks, and IPOs. In doing so, existing index funds implicitly engage in market timing. Index funds' long-short rebalancing portfolios have an annualized return of 4.61% and load negatively on value and profitability factors. We estimate these trades impose a 46-69 bps annual index-level performance drag. We explore alternative value-weighted indexes that rebalance less and delay responding to compositional changes. Despite still closely tracking the market, these indexes improve market timing and lower trading costs, saving 50 bps annually, an order of magnitude greater than index fund fees.