A comment on the index inclusion effect. AFAIK it appears to be more subtle than one intuitively thinks: as a stock moves from a smaller index "up" into a bigger index, it often sees selling pressure whereas a move down often sees buying pressure. It appears to me that the inaugural event of index inclusion (instead of a move between indices) causes buying pressure and a complete removal from indices causes selling from indices.
As I based my article below only on a single reference, I am curious of there is contradicting evidence that you are aware of:
My personal view is that the rise in index tracking has gone hand in hand with a rise in private equity. Removing the need for active management (or reducing the fees for) has meant a re-invention of active management which is where private equity comes in. It has removed the ability of being a "free rider" (ie. the index trackers leave the suckers to pay for active management which keep market efficiency in aggregate) because its impossible to index track private companies.
Where does this lead? Once a tipping point is reached perhaps private equity (where you pay for market efficiency) outperforms public markets (where you do not)?
A comment on the index inclusion effect. AFAIK it appears to be more subtle than one intuitively thinks: as a stock moves from a smaller index "up" into a bigger index, it often sees selling pressure whereas a move down often sees buying pressure. It appears to me that the inaugural event of index inclusion (instead of a move between indices) causes buying pressure and a complete removal from indices causes selling from indices.
As I based my article below only on a single reference, I am curious of there is contradicting evidence that you are aware of:
https://open.substack.com/pub/compcap/p/the-index-effect
My personal view is that the rise in index tracking has gone hand in hand with a rise in private equity. Removing the need for active management (or reducing the fees for) has meant a re-invention of active management which is where private equity comes in. It has removed the ability of being a "free rider" (ie. the index trackers leave the suckers to pay for active management which keep market efficiency in aggregate) because its impossible to index track private companies.
Where does this lead? Once a tipping point is reached perhaps private equity (where you pay for market efficiency) outperforms public markets (where you do not)?