MIndex: an algorithm to predict the rebalancing of the ASX Index

Forecasting stock additions and removals within the ASX 200 index holds significant implications for investors, enabling them to proactively adjust their portfolios and seize opportunities in response to market shifts. This preparedness also plays a crucial role in risk management by mitigating sudden fluctuations in portfolio value. Unfortunately, existing literature on index rebalancing is limited and not directly applicable to the ASX200. Until now, predictions for the ASX200 have relied solely on subjective methods. This paper introduces a novel algorithm called MIndex, designed specifically for forecasting ASX200 index changes, but extensible to other indices. MIndex leverages methodologies like ARIMA and incorporates AI techniques such as Prophet to provide a non-subjective approach to this forecasting process. It excels in accurately identifying stock additions and removals within the index. When compared to Macquarie's subjective predictions, MIndex outperforms in terms of F1-score and recall measures. This highlights MIndex's effectiveness in delivering actionable insights, strengthening strategic decision-making, and enhancing positioning within the dynamic landscape of index rebalancing.