Benjamin Felix

They outperform by more.

Now, this is the interesting part.

The outperformance peaks at the index inclusion date and then reverts significantly within two weeks.

So what's happening there, basically index funds are being front run by intermediaries like hedge funds who know that index funds are going to be buying the shares once they become eligible for inclusion.

And then the index funds end up holding the shares as they revert back down closer to their IPO price.

So they're getting front run basically.

And the index fund investors are paying what the authors of this paper call a shadow tax.

It's like ticket scalpers for concerts and sporting events, same idea.

That is fair.

There's another paper that we'll talk about later, which is another Marco Simon paper.

This front running IPO paper doesn't put the number into basis points.

Maybe I could have tried to figure that out.

They don't talk about that.

They put a dollar figure on it.

But anyway, their other paper that we'll talk about later

not just for IPOs, but for IPOs, buybacks, like all the different market composition changes, that's where they estimate a 50 to 70 basis point drag relative to an index that delays making those changes.

So we call it 50 basis points and that's from all the smaller midsize companies that are making changes and whatever corporate actions and secondary seasoned equity offerings, all that kind of stuff.

To your point, Dan, these companies are so much larger relative to the index that whatever effect we've seen historically, these ones would amplify it.

But like not actually though, because crisp, just to use that as an example, like if we look at SpaceX, there are two things and I'm getting way ahead of my notes here, but there are two things that are really important.

One is the float.