The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation

The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New... ABSTRACT We study the price effects of changes to the S&P 500 index and document an asymmetric price response: There is a permanent increase in the price of added firms but no permanent decline for deleted firms. These results are at odds with extant explanations of the effects of index changes that imply a symmetric price response to additions and deletions. A possible explanation for asymmetric price effects arises from the changes in investor awareness. Results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of S&P 500 index additions and deletions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
© American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.2004.00683.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT We study the price effects of changes to the S&P 500 index and document an asymmetric price response: There is a permanent increase in the price of added firms but no permanent decline for deleted firms. These results are at odds with extant explanations of the effects of index changes that imply a symmetric price response to additions and deletions. A possible explanation for asymmetric price effects arises from the changes in investor awareness. Results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of S&P 500 index additions and deletions.

Journal

The Journal of FinanceWiley

Published: Aug 1, 2004

References

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