This is called the "index rebalancing" trading strategy. Prop desks and hedge funds have known about it for decades. A lot of money is passively benchmarked to many popular indices provided by the likes of S&P, DJ, Nasdaq, etc... One reason people invest in funds that track these indices is because they believe the index provider is a good benchmark for whatever its tracking. For example, the S&P 500 tracks the 500 largest US names. The Nasdaq 100 tracks the 100 biggest (mostly tech-related) names that are Nasdaq-listed. etc... In addition to being a good benchmark, a set of rules (here are S&Ps: https://us.spindices.com/documents/methodologies/methodology...) are published by the index provider that govern how stocks are added and removed to the index. Understanding these rules allows arbitrageurs (aka market-makers) to predict when names are moving before they are announced by the index provider. Since a fair amount of capital is already tracking these indices, the passive indexer will be required to buy/sell the names in the index in the right proportion so as to be properly benchmarked.
Another interesting point is that the Volcker Rule has more or less caused a massive shift of this type of strategy away from US investment banks and into hedge funds. I don't have real data on this - just my observations.
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This is called the "index rebalancing" trading strategy. Prop desks and hedge funds have known about it for decades. A lot of money is passively benchmarked to many popular indices provided by the likes of S&P, DJ, Nasdaq, etc... One reason people invest in funds that track these indices is because they believe the index provider is a good benchmark for whatever its tracking. For example, the S&P 500 tracks the 500 largest US names. The Nasdaq 100 tracks the 100 biggest (mostly tech-related) names that are Nasdaq-listed. etc... In addition to being a good benchmark, a set of rules (here are S&Ps: https://us.spindices.com/documents/methodologies/methodology...) are published by the index provider that govern how stocks are added and removed to the index. Understanding these rules allows arbitrageurs (aka market-makers) to predict when names are moving before they are announced by the index provider. Since a fair amount of capital is already tracking these indices, the passive indexer will be required to buy/sell the names in the index in the right proportion so as to be properly benchmarked.
Another interesting point is that the Volcker Rule has more or less caused a massive shift of this type of strategy away from US investment banks and into hedge funds. I don't have real data on this - just my observations.