The largest Samp;P 500 indexers replicate the index with tracking errors of just several basis points per year. Maintaining such small errors requires a nearly exact-replication strategy and precludes profiting from trading much before or after index changes. A strategy of trading at the open...

To minimize tracking error, Samp;P 500 index funds often follow inflexible, nearly exact replication strategies. This inflexibility causes stocks with relatively low floating supply to experience abnormally high negative or positive returns upon addition or deletion on average. Moreover, the...