A scorecard from the S&P game

In October 1989, Standard and Poor's began its practice of pre-announcing changes in the S&P 500 index composition The new announcement practice created the "S&P game" - a trading strategy in which so-called "risk-arbitrageurs" buy the shares of newly added index stocks on the day following the announcement, and sell on the day the index change becomes effective. Because S&P 500 index funds tend to wait until the effective day to rebalance their holdings (in order to minimize tracking error) the authors show that the S&P game has been profitable on a risk-adjusted basis. The pricing inefficiency is slowly disappearing, however.