Significant returns were associated with the annual reconstitution of the Russell equity indexes from 1996 through 2002, which can be explained by both transitory price pressure and the permanent effects of index membership. On the one hand, the return effects represent a significant cost to index funds that rebalance on the reconstitution date. On the other hand, supplying immediacy at this time can be highly profitable. This strategy is typically undiversified, however, and involves high trading costs and price risk as positions are unwound. Indeed, dramatic intraday return volatility characterizes the day of reconstitution. These factors explain the persistence of the reconstitution effects documented here.