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Negative returns on addition to the S&P 500 index and positive returns on deletion? New evidence on the attractiveness of S&P 500 versus S&P 400 indexes

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  • Anand M. Vijh
  • Jiawei (Brooke) Wang

Abstract

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 2016–2020, such “upward additions” to the S&P 500 index resulted in an average announcement excess return of –2.48% over a 3‐day period, while “downward deletions” to the S&P 400 index resulted in an excess return of +1.37%. We explain these new results by the increasing total institutional ownership of S&P 400 stocks. 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.

Suggested Citation

  • Anand M. Vijh & Jiawei (Brooke) Wang, 2022. "Negative returns on addition to the S&P 500 index and positive returns on deletion? New evidence on the attractiveness of S&P 500 versus S&P 400 indexes," Financial Management, Financial Management Association International, vol. 51(4), pages 1127-1164, December.
    • Handle: RePEc:bla:finmgt:v:51:y:2022:i:4:p:1127-1164
    DOI: 10.1111/fima.12391
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    References listed on IDEAS

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    1. Liao, Yixin & Coakley, Jerry & Kellard, Neil, 2022. "Index tracking and beta arbitrage effects in comovement," International Review of Financial Analysis, Elsevier, vol. 83(C).

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