FTSE JSE Index migration - Testing for a tradeable index effect

Abstract

This paper studies whether periodic changes to the constituents in the Swix Top 40 Index leads to price distortions at quarterly rebalancing. Following large and predictable spikes in trade of affected stocks around rebalancing, the natural question is whether this produces a profitable arbitrage trade. Considering excess returns over key rebalancing dates we find that a profitable (yet risky) long-short trade exists, but that the timing of this strategy is key (notably early entry and exit). We also find no evidence of medium-term benefits to being included in the Swix Top 40, apart from higher liquidity for entrants.

Publication
Investment Analysts Journal
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Nico Katzke
Senior Quant

Quantitative Analyst