Navigating Index Rebalancing Complexities

This chapter explores the intricacies of index rebalancing within the ETF market, including the strategies hedge funds employ and the challenges they face. It highlights key events, such as the adjustment to the S&P Small-Cap ETF and the repercussions of sudden index rule changes, which have led to significant financial losses. The discussion emphasizes the importance of transparency in index construction and the unpredictable nature of capital flow in response to rebalancing events.