Topic summary
Index funds
Extracted from the Wikipedia article Index fund.
Losses to arbitrageurs upon index rebalancing
Index funds must periodically "rebalance" or adjust their portfolios to match the new prices and market capitalization of the underlying securities in the index that they track. This allows algorithmic trading to take advantage of index arbitrage by anticipating and trading ahead of the market impact caused by mutual fund rebalancing, making a profit on foreknowledge of the large institutional block orders.