Article2006

Market Reaction to Changes in the S&P SmallCap 600 Index

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Abstract

Abstract Firms added to (deleted from) the S&P 600 index experience a significant price increase (decrease) at announcement. Firms that newly enter (exit) the S&P universe experience a larger price increase (decrease) than firms that move between S&P indexes. Trading volumes are higher after the announcement and institutional ownership increases (decreases) following index additions (deletions). However, the price and volume effects are temporary and are fully reversed within 60 days, in contrast to the permanent effects reported for S&P 500 changes. Our results support the temporary price‐pressure hypothesis and are similar to results reported for Russell 2000 index changes.

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References

1993Common risk factors in the returns on stocks and bonds 1985Using daily stock returns 1986Asset pricing and the bid-ask spread 1986Do Demand Curves for Stocks Slope Down?1986Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures 2004The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation 1997New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index 2000Demand Curves for Stocks Do Slope Down: New Evidence from an Index Weights Adjustment

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2007The Impact of Changes in the FTSE 100 Index 2017Effects of changes in stock index compositions: A literature survey 2010Does Inclusion in a Smaller S&P Index Create Value?2014The impact of new, renewal and termination sponsorship announcements on share price returns

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