This paper analyzes why the S&P 500 Index is not a self-financed or a tradable portfolio and why it cannot be replaced by a mimicking portfolio such as the SPDR or the Vanguard S&P 500 Index Fund, when applying the standard arbitrage pricing theory. In particular, we show that the nonlinear and...

Focusing on pre-announced index deletions which induce liquidity needs by index funds and using daily short selling data, we show that short sellers employ front-running strategies in which short sellers sell stocks immediately after the announcements of deletions from index composition until...