Index membership is announced before it takes effect, and the gap between announcement and inclusion is where most of the price movement happens. The reason is that the buying is both compulsory and predictable.
Passive funds are not discretionary buyers
A fund that tracks an index has committed to holding what the index holds. When a name is added, the fund must own it or accept a deviation from its benchmark.
That obligation removes judgment from the decision. The fund buys regardless of whether it considers the price attractive, because its mandate is replication rather than selection.
Because a substantial share of US equity assets is managed this way, an addition creates demand that is known in advance and largely insensitive to price.
The date is public, which is the whole problem
Index providers publish their rules and announce changes ahead of the effective date so that funds can prepare and trade in an orderly way.
The same disclosure tells everyone else exactly when a wave of price-insensitive buying will arrive and roughly how large it will be.
Other participants can position ahead of it, buying from current holders and standing ready to sell into the inclusion trade. The predictability that helps funds execute cleanly is the same predictability that invites competition for the trade.
Anticipation moves the adjustment earlier
Because that positioning is widely understood, much of the price response happens in the days after the announcement rather than on the inclusion date itself.
By the time index funds transact, part of the supply they need is held by participants who acquired it specifically to sell to them.
The result is that the effective date can look quiet even though enormous volume crosses, since the price adjustment largely preceded it.
Deletions run the same mechanism in reverse
A company removed from an index must be sold by every fund tracking it, on a known date, again without regard to price.
Forced selling into a market that knows it is coming produces pressure in the opposite direction, with the same anticipatory positioning ahead of it.
Deletion effects are often noisier, because removals frequently follow a decline that already changed who owns the stock and why.
The effect fades after the trade clears
Once inclusion is complete and the forced flow is finished, the temporary supply and demand imbalance disappears.
What remains is a change in the shareholder base rather than a change in the business, since membership in a list does not alter what a company earns.
Index providers have responded by phasing large changes over multiple days and staggering effective dates, which spreads the flow and reduces how sharply it can be anticipated.