Stats › Concentration and breadth › Index effect
The S&P 500 index effect
For about thirty years, a company could see its share price jump for a reason that had nothing whatsoever to do with the company. It just got added to the S&P 500. Same products, same customers, same earnings, and the stock went up several percent because a lot of index funds suddenly had to own it. That's the index effect, and for a long time it was one of the cleanest pieces of evidence that buying pressure alone can move a price.
It's basically gone now. This page tracks the decline, from Shleifer's original plus 2.79% in the late seventies to a peak around plus 7.4% in the nineties, down to something you can't distinguish from zero in the 2010s. S&P Dow Jones Indices measured it themselves and got the same story. And the reason it's worth a page of its own is the shape of the puzzle: index fund ownership went from roughly nothing to about 7% of the whole US market over exactly the same stretch. More forced buying should mean a bigger price impact. Instead the effect disappeared.
You'll also find the actual inclusion criteria here, which are more mechanical than most people assume, and the estimate of what this cost index fund holders back when it was live. Four sources, all listed and dated below, and the notes flag where the academic and the index provider measurements disagree. If you want to argue with anything on this page, the papers are linked and free.
Being added to the S&P 500 used to be worth money for no reason connected to the business. The effect measured plus 2.79% in 1976 to 1983, peaked at around plus 7.4% in the 1990s, and is now below 1% and statistically indistinguishable from zero. S&P Dow Jones Indices' own measurement puts the median excess return from announcement to effective date at plus 8.32% in 1995 to 1999 and minus 0.04% in 2011 to 2021. The puzzle is that index fund ownership grew from roughly nothing to about 7% of US market capitalisation over the same period. More indexed money produced less price impact, not more.
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