Download or read book Extended Stock Returns in Response to S P 500 Index Changes written by Nimesh Patel and published by . This book was released on 2016 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Our paper investigates extended abnormal returns for S&P 500 index changes in a comprehensive 1979-2015 sample. The literature's depiction of longer window returns lacked both appropriate nuance and cross-sectional analysis. Solid evidence for reversion appears in the 2000s. It suggests that stocks no longer experience permanent shifts in investor demand when they are added to or removed from the S&P 500.

Download or read book Price Response to Factor Index Additions and Deletions written by Joop Huij and published by . This book was released on 2018 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book A Comprehensive Long Term Analysis of S P 500 Index Additions and Deletions written by Kalok Chan and published by . This book was released on 2015 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book S P 500 Index Changes and Investor Awareness written by Honghui Chen and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Price Response to S P 500 Index Additions and Deletions written by Honghui Chen and published by . This book was released on 2003 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book New Evidence on Stock Price Effects Associated with Charges in the S P 500 Index written by Anthony W. Lynch and published by . This book was released on 2008 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book New Evidence from S P 500 Index Deletions written by Rashiqa Kamal and published by . This book was released on 2014 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Investor Awareness and Market Segmentation written by Honghui Chen and published by . This book was released on 2002 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book 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 published by . This book was released on 2020 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Analysis of the Effects of Pre Announcement of S P 500 Index Changes written by Stoyu I. Ivanov and published by . This book was released on 2013 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study we attempt to answer the question - does the start of pre-announcing of S&P 500 index changes in October 1989 have an effect on the trading pattern of added or deleted firms? We document that prior to October 1989 the excess returns of added or deleted firms follow a white noise process around the event, whereas after the start of pre-announcing the excess returns can be described as nonstationary. This indicates significant excess profits to be captured around the addition or deletion event after S&P started pre-announcing changes in October 1989 but not prior to that date.

Download or read book New Evidence on Stock Price Effects Associated with Changes in the S P 500 Index written by Anthony W. Lynch and published by . This book was released on 1995 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Market Reactions to Changes in the S P TSX SmallCap Index written by Ph.D. Biktimirov (CFA, Ernest N.) and published by . This book was released on 2016 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: Earlier studies find inconsistent results about market reactions to changes in large cap and small cap stock indexes. This study extends the literature by examining stock price and trading volume reactions to changes in the Canadian S&P/TSX SmallCap index, and offers several conclusions. First, consistent with previous studies, we find that the way a stock is added to or removed from the index makes a large difference. Specifically, pure additions to the S&P/TSX SmallCap index show significant positive cumulative abnormal returns in the period before and on the announcement day. In contrast, downward additions experience a significant negative abnormal return on the effective day. Similarly, pure deletions show significant negative cumulative abnormal returns before the announcement day, as well as on both the announcement and effective days. On the other hand, upward deletions do not experience significant abnormal returns during the event period.Second, we find a permanent stock price increase for pure additions to the S&P/TSX SmallCap index. Pure additions also tend to experience an increase in trading volume and decline in the relative bid-ask spread. In contrast, pure deletions show a permanent price decline that is partially reversed immediately after the effective day.Third, the significant abnormal trading volume on the effective day considerably exceeds the significant abnormal trading volume on the announcement day for all groups. This could be explained by the trading behavior of index funds that buy additions and sell deletions on the effective day near closing price to minimize tracking error.

Download or read book Market Capitalization Changes For S P 500 Inclusions And Exclusions written by Colin Tissen and published by GRIN Verlag. This book was released on 2015-06-19 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Research Paper (postgraduate) from the year 2015 in the subject Business economics - Investment and Finance, grade: 9.0/10, Maastricht University, language: English, abstract: Previous research has already proven that firms which get included in or excluded from the S&P 500 index experience stock price changes that ultimately result in market capitalization changes. The causes of these changes has extensively been examined, but a consensus on the true cause has not yet been reached. In this paper the market capitalization effect is examined by making a distinction between the reasons for inclusions and exclusions. It is argued that expected events, like bankruptcy and index-downgrading, have lower price effects than unexpected events, which include mergers and acquisitions. By usage of a regression analysis it is concluded that there is no difference in price effects between the individual reasons for inclusions and exclusions. However, when the reasons are grouped into unexpected and expected events there is a significant effect for the inclusions. Firms which expectedly enter the index experience lower market capitalizations changes than firms which unexpectedly entered the index. This effect could not be proved for exclusions.

Download or read book The S P 500 Index Effect in Continuous Time written by Konstantina Kappou and published by . This book was released on 2007 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: The advent of index tracking early in the 1970s and the continuous growth of assets tied to the Samp;P 500 index have enforced perceptions of the importance of becoming an index-member, due to increased demand by index fund participants for the stocks involved in index composition changes. This study focuses on Samp;P 500 inclusions and examines the impact of potential overnight price adjustment after the announcement of an Samp;P 500 index change. We find evidence of a significant overnight price change that diminishes the profits available to speculators although there are still profits available from the first day after announcement until a few days after the actual event. More importantly observing the tick-by-tick stock price performance of the key days of the event window for the first time, we find evidence of consistent trading patterns during trading hours over inclusion event. A separate analysis of two different sub-periods as well as of NASDAQ and NYSE listed stocks allows for a detailed examination of the price and volume effect in continuous time.

Download or read book The Long Run Stock Returns Following Bond Ratings Changes written by Ilia D. Dichev and published by . This book was released on 2013 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a comprehensive sample that comprises essentially all Moody's bond rating changes between 1970 and 1997 to examine the long-run stock returns following the changes. Our main finding is that stocks with upgrades outperform stocks with downgrades for up to one year following the announcement but we find little or no reliable difference in returns thereafter. The return differential between stocks with upgrades and downgrades is on the magnitude of 10 to 14 percent in the year following the announcement, and is mostly due to the poor performance of stocks with downgrades. Additional tests reveal that the underperformance of downgrades is primarily due to the poor returns of small and low credit quality firms, which are likely the firms with the largest information problems. Probing into the causes for this phenomenon, we find that current ratings changes predict changes in future ratings and future profitability. More importantly, we find some evidence of significant differences in returns at subsequent earnings announcements of stocks with upgrades and downgrades, which suggests that the market does not fully anticipate the predictable future changes in earnings. We also find strong evidence that the magnitude of the post-announcement returns is increasing in the magnitude of the pre-announcement returns, consistent with a delayed and gradual adjustment to the announcement information. Thus, the limited duration of abnormal returns, the pattern of predictable reactions at subsequent earnings announcements, and the strong relation between pre and post-announcement returns suggest that the abnormal post-announcement returns are at least partly due to incomplete adjustment to information.

Download or read book Is There an S P 500 Index Effect written by Maria Kasch and published by . This book was released on 2014 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper finds that the permanent changes in market value and return comovement, previously attributed to S&P 500 index additions, reflect well-established regularities in asset returns independent of index membership. Specifically, we document that index additions are preceded by extraordinary market and earnings performance of the event firms and that - after accounting for this performance - the additions have no permanent effect on the firms' market value and standard measures of systematic risk. The permanent value effect which has been attributed to index membership is a manifestation of the momentum in returns (Jegadeesh and Titman (1993)), while the change in comovement reflects declines in the loadings on size and value factors (Fama and French (1993)). Our results show the importance of addressing endogeneity for causal inference in event studies.

Download or read book A REVIEW OF TYPICAL FIRM DELETION FROM THE S P 500 written by Rena Li and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.