When a company is added to an S&P index, other funds that mimic the holdings of stock within these indexes must rebalance their holdings and buy the stock which is added. The additional purchase of many shares often drives up the price of the stock being added.
For smaller cap stocks with lower trading volume, being added to an index can also stabilize its price by adding greater trading volume, which can keep the bid price and ask price closer to one another.
For all companies, the ongoing purchasing of the indexes can prop up the share prices over the longer term.
Being added to an index also helps make the stock more widely known to analysts, investors, and the media. More coverage can lead to greater trading volume, which can have a positive impact on the share price.
LevelFields alerts users when a new company is added or subtracted to various S&P indexes. The platform also shows how stocks are impacted by these changes short and long term.
For more information, visit the S&P 500 scenario on the LevelFields app, or visit the LevelFields corporate website for more information.
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