The annual reconstitution of the Russell 2000 index creates a flurry of trading activity as money managers apply the new index, said Institutional Technology Group. The revamping began May 31, and will culminate in a newly composed index July 1. The process also ``creates a window of investment opportunity and risk since stock prices may be affected over the short term,'' said a report from ITG. The firm is tracking the performance of a model portfolio of stocks it predicts will be added to or deleted from the index this year, based on its research.
``In both 1994 and 1995, stocks added to the index substantially outperformed those deleted during the reconstruction period. But in 1995, the price impact of the changes was double what we'd seen the previous year,'' said David Cushing, ITG's director of research.