Google's addition to the S&P 500 index last week suggests that there are few more reliable ways for a company to boost its stock price than by joining the blue-chip index. However, for most companies, it seems that the share price reaction is nowhere near as sharp as it used to be.
Shares in Google jumped almost 7 per cent on Friday after S&P said the internet search giant would replace oil and gas exploration company Burlington Resources in the index.
Efforts on Wall Street to second-guess which company will join the S&P next have intensified over the years as have strategies designed to take advantage the so-called "index effect" when a new stock joins.
At present, about $1.2 trillion (€1 trillion) is invested in index and exchange-traded funds (ETFs) tied to the S&P 500, compared with $460 billion 10 years ago, and many other investors have holdings that at least partly track the index.
New instruments have fed the boom. Assets of ETFs - index funds traded like stocks on an exchange - total around $325 billion, up from $100 billion in 2002, and they are expected to grow further thanks to their popularity with hedge fund managers.
Conventional wisdom is that index funds would suddenly be forced to buy Google shares en masse, especially since the size of the company's free-floating shares would give it a weighting of around 0.55 per cent in the S&P 500.
