This study examines changes in stock liquidity, as measured by the bid/ask spread, when a stock is added to the S&P 500 Index. The paper presents evidence of a significant decrease in the bid/ask spread upon S&P 500 addition, however, this effect is limited to only those stocks that were not trading listed options. Further, the decrease in the bid/ask spread for nonoptioned stocks is accompanied by a significant and permanent increase in share price and trading volume. While optioned stocks experience a permanent increase in trading volume, they experience only a temporary increase in share price. The findings for optioned stocks support the hypothesis that the price and volume effects associated with S&P 500 addition derive from temporary price pressure. Findings pertaining to the nonoptioned stocks indicate that the price and volume effects associated with S&P addition reflect enhanced stock liquidity. The decrease in the bid/ask spread for nonoptioned stocks is attributed to informational efficiencies achieved via index arbitrage trading, and it is argued that this effect is mitigated for optioned stocks due to the pre‐existence of arbitrage trading between the option and the underlying stock.
Financial Review – Wiley
Published: Feb 1, 1998
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.
All for just $49/month
Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly
Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.
Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera