Comment by zozbot234
1 hour ago
> it's possible that frees up more than 20% of float and it suddenly has to be weighted at the full 100% of market cap
In your scenario, that 100% cap would by definition be less than 5x float so it shouldn't trigger any more buying than the lock-up expiration itself did.
Not sure what you mean, can you help me understand?
Do you mean if free float goes from 5% to 100%, and weighting goes from 25% to 100%, it's more "extra supply" than "extra demand"? That's a good point I hadn't considered. I'm not sure the details of the lock-up period though, it might be staggered. So if it goes from 5% float to 50% float, that's 45% of additional shares available to buy, but an addition 75% of the market cap that indices now need to weight to. But it's true this would only happen once (when free float goes from below 20% to above). Then after that the extra supply would be more than the extra demand. Or do I misunderstand?
If free float is 19%, the firm is being weighted at 95% of its market cap, which is 5x the float. If free float is 21%, the firm is weighted at 100%, which is less than 5x the float (that would be 105%). The transition from "5x the float" to "market cap" doesn't increase the weighting any more than the change in float would.