CHAPTER 10

Rebalancing, Reconstitution and Corporate Actions

Keeping the basket true as companies change

Opening question

“My bank shares fell 17% overnight, but my broker says I lost nothing because I received bonus shares. Why did the index not fall either?”

In this chapter

The difference between rebalancing and reconstitution, and how review calendars work
Announcement, cut-off and effective dates
Turnover, its cost and the index-inclusion effect
The divisor: the tool that keeps an index continuous
Worked adjustments for cash dividends, bonus shares, splits and rights issues
Mergers, spin-offs, suspensions, delistings and IPO additions
Vietnam: frequent stock dividends, rights issues and price limits

🔒

This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 10 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Index Investing: From Theory to Practice (Volume 1, NXW Investment Library).

Read Chapter 1 free Get the full book — [email protected]

Sections of this chapter

10.1 Two kinds of maintenance

10.2 Review calendars and key dates

10.3 Turnover, its cost and the inclusion effect

10.4 The divisor: keeping the index continuous

10.5 Cash dividends: price and total return

10.6 Stock dividends, bonus shares and splits

10.7 Rights issues and new shares

10.8 Mergers, spin-offs, suspensions, delistings and IPOs

← Chapter 9: Weighting Schemes Chapter 11: Sector, Thematic, ESG and Multi-Asset Indexes →