I read "The Hugely Profitable, Wholly Legal Way to Game the Stock Market" by Yuji Nakamura of Bloomberg and decided to try my hand at a quick and dirty version of the strategy/phenomna presented in the article: front running index funds.
Recent trends in investing are showing a huge influx in the amount of money people are investing in index funds. Attracted by their passive management style, and consequently low fees, investors look to index funds as a source of consistent performance that neither beats nor comes up short relative to the market.
For example take the S&P 500.
The S&P 500 effect on the price of companies is nothing new and neither is front running. While "front running" is generally considered illegal, the strategy of buying stock in a company who is about to be added to the S&P 500 or any index is not. Naturally, index funds track the underlying assets of their indices, so when a new security is added there is a large influx of buy orders from funds trying to fulfill their mandate. This wave of orders raises the price of the security, and potentially yields profit for the savvy investor.
To delve into this further we need data on the index changes
We looked to our friends at EventVestor and they provided us a sample of data containing index addition and deletion events for the last 8 years (2007-present).
Here is the download link for the data I used. You will need to upload this data into the new Quantopian Research platform to fully interact with this notebook.