The huge influx of assets to index funds in the late 1990s and early 2000s was one of the reasons that made Dexia Asset Management’s Index Arbitrage hedge fund possible.
The fund works on the premise that every time a stock is added to or dropped from an index, or when a rebalancing takes place, funds that track the index through physical replication, such as holding physical stock, will need to buy or sell that stock.
The price movements (arbitrages) this creates are what Dexia aims to take
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