The Price Response To S P 500 Index Additions And Deletions
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The Price Response To S P 500 Index Additions And Deletions
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Author : Honghui Chen
language : en
Publisher:
Release Date : 2003
The Price Response To S P 500 Index Additions And Deletions written by Honghui Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with categories.
We study the price effects of firms added to and deleted from the Samp;P 500 index and document an asymmetric price response: there is a permanent increase in the price of added firms but no similar decline for deleted firms. These results are at odds with extant explanations of the effects of Samp;P 500 index changes which imply a symmetric price response to additions and deletions. A possible explanation for asymmetric price effects arises from changes in investor awareness. Results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of Samp;P 500 index additions and deletions.
Price Response To Factor Index Additions And Deletions
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Author : Joop Huij
language : en
Publisher:
Release Date : 2018
Price Response To Factor Index Additions And Deletions written by Joop Huij and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
Abnormal price reaction around S&P 500 index changes has been considered as strong evidence that long term demand for stocks is downward sloping. This notion, however, has recently lost popularity due to the evidence that new additions are accompanied with a contemporaneous change in future earnings expectations. In this study we show that factor index rebalancing is a true information free event. The cumulative abnormal return from announcement to effective day is 1.07% for new additions and -0.91% for new deletions and around two-thirds of this effect is permanent. We find a direct relationship between the magnitude of abnormal returns and the abnormal volume coming from index funds. The documented effect results in a direct loss to index fund investors of 16.5 bps per annum.
S P 500 Index Changes And Investor Awareness
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Author : Honghui Chen
language : en
Publisher:
Release Date : 2005
S P 500 Index Changes And Investor Awareness written by Honghui Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
We find that, on average, firms added to the Samp;P 500 index experience a permanent price increase, while those deleted from it suffer only a temporary price decline. Existing theories, such as a downward sloping demand curve, liquidity, and information, fail to explain the asymmetric response. We propose a new explanation for the observed price patterns: changes in investor awareness. Investors become more aware of a stock upon its addition to the Samp;P 500 index but do not become similarly unaware of a stock following its deletion. This results in a significant price increase after an addition but not an equivalent decline after a deletion. Consistent with our hypothesis, we find that Merton's (1987) measure of awareness improves after an addition but remains essentially unchanged after a deletion. The price reaction is related to changes in the measure of awareness.From a practical standpoint, our results suggest that index fund managers who are not constrained by tracking error minimization are better off not trading on the effective date. Rather, they may be able to benefit their shareholders by executing purchases of additions upon announcement, but waiting to sell deleted firms until well after the effective date.
A Review Of Typical Firm Deletion From The S P 500
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Author : Rena Li
language : en
Publisher:
Release Date : 2019
A Review Of Typical Firm Deletion From The S P 500 written by Rena Li and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Investors and firms are always trying to predict the future, but what is certain is change. In this paper, I investigate S&P 500 changes to further research on the supposed presence of an asymmetric price response between index additions and deletions. By replicating the original study which asserted the existence of asymmetry, I place a particular focus on the deletions due to the lack of agreement on the subject and report the cumulative abnormal return medians of deleted firms. Medians contribute typicality, while means fall susceptible to outliers and as a result, skewness. By providing the median cumulative abnormal returns of deleted S&P 500 firms, future S&P member firms can understand and predict what is standard or ordinary upon index deletion. Unfortunately, the answer of typical deletion is bleak with most deleted firms declining in share price initially and even 60 trading days out. The medians do not lie.
A Comprehensive Long Term Analysis Of S P 500 Index Additions And Deletions
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Author : Kalok Chan
language : en
Publisher:
Release Date : 2015
A Comprehensive Long Term Analysis Of S P 500 Index Additions And Deletions written by Kalok Chan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
We investigate the long-term effects of S&P 500 index additions and deletions on a sample of stocks from 1962 to 2003 and find a significant long-term price increase for both added and deleted stocks, with deleted stocks outperforming added stocks. The long-term price increase for added stocks can be attributed to increases in institutional ownership, liquidity, and analyst coverage, and a decrease in the shadow cost in the long-term. However, while deletion has no significant effect on analyst coverage and shadow cost, we find a rebound in the institutional ownership and liquidity of deleted stocks. The difference in the long-term price increase of added and deleted stocks can be explained by analyst coverage and operating performance.
New Evidence On Stock Price Effects Associated With Charges In The S P 500 Index
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Author : Anthony W. Lynch
language : en
Publisher:
Release Date : 2008
New Evidence On Stock Price Effects Associated With Charges In The S P 500 Index written by Anthony W. Lynch and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
Since October 1989, Standard and Poor s has (when possible) announced changes in the composition of the Samp;P 500 index one week in advance. Because index funds hold Samp;P 500 stocks to minimize tracking error, index composition changes since this date provide an opportunity to examine the market reaction to an anticipated change in the demand for a stock. Using post-October-1989 data, we document significantly positive (negative) post-announcement abnormal returns that are only partially reversed following additions (deletions). These results indicate the existence of temporary price pressure and downward-sloping log-run demand curves for stocks and represent a violation of market efficiency.
Negative Returns On Addition To S P 500 Index And Positive Returns On Deletion New Evidence On Attractiveness Of S P 500 Vs S P 400 Indexes
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Author : Anand M. Vijh
language : en
Publisher:
Release Date : 2020
Negative Returns On Addition To S P 500 Index And Positive Returns On Deletion New Evidence On Attractiveness Of S P 500 Vs S P 400 Indexes written by Anand M. Vijh and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
In recent years, the majority of additions to and deletions from the S&P 500 index have been stocks that were previously or subsequently included in the S&P 400 index. The announcement returns of these changes have been the opposite of what has been documented for all S&P 500 additions and deletions in an extensive literature. During 2016-2019, such 'upward additions' to the S&P 500 index resulted in an average announcement excess return of -2.31% over a three-day period while 'downward deletions' resulted in an excess return of +1.21%. We explain these new results by the increasing ownership of S&P 400 stocks by institutional investors, the majority of whom are active fund managers. Our results thus show the increasing benefits of being included in the mid-cap S&P 400 index relative to being included in the large-cap S&P 500 index.
The Long Term Price Effect Of S P 500 Index Addition And Earnings Quality
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Author : Petya Platikanova
language : en
Publisher:
Release Date : 2008
The Long Term Price Effect Of S P 500 Index Addition And Earnings Quality written by Petya Platikanova and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
A positive price response ...
Investor Awareness And Market Segmentation
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Author : Honghui Chen
language : en
Publisher:
Release Date : 2002
Investor Awareness And Market Segmentation written by Honghui Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.
Several studies have found that stock price changes resulting from firms added to the Samp;P 500 index can be best exp lained by a downward sloping demand curve. In this paper, we study price effects around both additions and deletions and find that the price effect of index changes is consistent with Merton's (1987) investor-awareness and market segmentation hypothesis. We find that the reduction in shadow cost of incomplete diversification that follows additions is correlated with abnormal returns accruing to the added stocks. We also find that the asymmetric price effects of additions and deletions that have not been explained by empirical studies thus far are consistent with market segmentation.
New Evidence From S P 500 Index Deletions
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Author : Rashiqa Kamal
language : en
Publisher:
Release Date : 2014
New Evidence From S P 500 Index Deletions written by Rashiqa Kamal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Kamal, Lawrence, McCabe, and Prakash (2012) argue that information asymmetry exists in the financial markets and additions to S&P 500 Index convey new information about the added firms to the uninformed investors. They further argue that because of important changes and regulations in the financial markets, like, Regulation Fair Disclosure, Sarbanes-Oxley Act, and Decimalization of the exchanges, in or after the year 2000, information asymmetry has decreased. In support of their arguments, they find that for additions, the positive abnormal returns on announcement day have decreased, and added stocks' liquidity changes have become marginal in the post-2000 period. We extend their work and for a sample of deletions between October 1989 and December 2011, we find that the negative abnormal returns on the announcement day are not significantly different in the post-2000 period, but the negative returns are reversed earlier in the post-2000 period. Contrary to our expectation, liquidity changes after deletion are significant in the post-2000 period. However, when we divide our sample into optioned versus nonoptioned stocks and control for other factors that affect liquidity, we find that liquidity changes after deletion are insignificant in the post-2000 period.