Comment by bryanlarsen
6 months ago
The flaw is the limited float. Indexes will be forced to buy a huge number of shares which don't exist, driving up the price.
For general investors if this is going to eventually happen, the earlier the indexes buy in the better. Otherwise more sophisticated investors will buy ahead of the indexes and grab the profit.
if they weighted (fully) by float (perhaps the average float from the trailing 90 days to the re-balance) it would not be as easy to game. The Nasdaq is accounting for float, but not completely.
Aren't basically all the huge serious index funds float weighted?
They are, but SpaceX is trying to get rules changed. They want the index to buy at a multiple of the float, so they release say 5% but get bought as if they had released 15% float. They also normally wouldn't be eligible for index inclusion for ~1 year, after showing multiple quarters of good stewardship, etc. They're trying to bypass all that
Yes, the MSCI World and FTSE World that many broad ETFs and funds track are float weighted.
Matt Levine wrote (uh, yesterday?) that the Nasdaq 100 was adding it (not a full linear weighting....) right now to accommodate this scam.
7 replies →