When a stock goes all the way from being a large cap stock to being a small cap in the course of a few days… does that trigger additional selling or is there some sort of index rebalancing delay mechanism?
interesting question. i don’t know when something like this has actually happened, so i’m curious, is this a real-life situation or a hypothetical one? sounds like the company would have to go through a meltdown of epic proportions…when i saw this post, i immediately thought about a few mid-cap biotechs that blew up when they got non-approvals for some potential blockbuster drug candidates, but that only dropped their capitalization from mid- to small-cap…
Partially hypothetical, partially real-life. The reason I’m asking is that value investor vulchers are always looking for situations where people have to sell, i.e. a fund might “have to sell” a stock because it crossed the boundries of it’s market cap limits. In Canada, it used to be that a lot of funds had to sell stocks that went under $5. The real life incident that made me ask is what is happening with RHD, although it’s more like months not days that it has transitioned from 5 billion(large cap) to .5 billion(small cap). It actually enjoyed a good 4 months of living the mid cap life. I still think there are a lot of funds who just have to sell cuz it’s so far out of their range.
You consider $5B large cap?
In the UK, the FTSE 100 is periodically “reset.” I think monthly or quarterly. A recent example of a large-cap to small-cap mover here is Northern Rock. It’s now been nationalised.
Actually, NRK never hit the small cap. It went from FTSE 100 (Large) to FTSE 250 (mid) in December, and didn’t leave till it was nationalised. Admittedly, the lower end of the FTSE 250 meets the definition of “small cap” by most definitions, but technically the FTSE 250 is mid cap.