When a commercial index is revised, some securities may be added to its list of constituents while others may be deleted in a process known as reconstitution. The goal of reconstitution is to periodically rebalance the index to account for historical changes in the market and their constituents during the prior period. Index fund managers, who track an underlying index, may be forced to buy the additions and sell the deletions, with no discretion regarding the securities they hold and when to change their relative weights. They’re generally forced to do this in order to minimize tracking error relative to the index, which may result in sub optimal portfolios and increased costs.
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Can AI be used to identify mispriced securities?
Active investors have long attempted to get an informational edge on markets by using artificial intelligence (AI) processes to retrieve and process data. For example,
August 2, 2023
