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What Drives the S&P 500 Inclusion Effect? An Analytical Survey

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  • William B. Elliott
  • Bonnie F. Ness
  • Mark D. Walker
  • Richard S. Wan

Abstract

We present an analytical survey of the explanations-price pressure, downward-sloping demand curves, improved liquidity, improved operating performance, and increased investor awareness-for the increase in stock value associated with inclusion in the S&P 500 Index. We find that increased investor awareness is the primary factor behind the cross-section of abnormal announcement returns. We also find some evidence of temporary price pressure around the inclusion date. We find no evidence that long-run downward-sloping demand curves for stocks, anticipated improvements in operating performance, or increased liquidity are related to the cross-section of announcement or inclusion returns. Copyright (c) 2006 Financial Management Association International.

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Bibliographic Info

Article provided by Financial Management Association International in its journal Financial Management.

Volume (Year): 35 (2006)
Issue (Month): 4 (December)
Pages: 31-48

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Handle: RePEc:bla:finmgt:v:35:y:2006:i:4:p:31-48

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Cited by:
  1. Chan, Kalok & Kot, Hung Wan & Tang, Gordon Y.N., 2013. "A comprehensive long-term analysis of S&P 500 index additions and deletions," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4920-4930.
  2. Azevedo, Alcino & Karim, Mohamad & Gregoriou, Andros & Rhodes, Mark, 2014. "Stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysian KLCI," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 20-35.
  3. Karel Hrazdil, 2010. "S&P 500 index inclusion announcements: does the S&P committee tell us something new," Managerial Finance, Emerald Group Publishing, vol. 36(5), pages 368-393, May.
  4. Levy, Tamir & Yagil, Joseph, 2013. "Changing the methodology of equity indices—The case of the Tel-Aviv Stock Exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 91-99.

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