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The Impact of Changes in the FTSE 100 Index

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  • Bryan Mase
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    Abstract

    This paper investigates FTSE 100 index membership changes, which are determined quarterly by market capitalization and should have no information content. Return reversal around index additions and deletions suggests that buying (selling) pressure moves prices temporarily away from equilibrium, consistent with short-term downward sloping demand curves. In contrast to widely reported results for the S&P 500, there is no evidence of permanent price effects. Further results suggest that investor awareness and monitoring due to index membership do not explain the price effects. There is statistically significant anticipatory trading in stocks that just fail to be promoted to the FTSE 100. Copyright 2007, The Eastern Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2007.00179.x
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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal Financial Review.

    Volume (Year): 42 (2007)
    Issue (Month): 3 (08)
    Pages: 461-484

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    Handle: RePEc:bla:finrev:v:42:y:2007:i:3:p:461-484

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    Web page: http://www.easternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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    Cited by:
    1. Jubinski, Daniel & Tomljanovich, Marc, 2013. "Do FOMC minutes matter to markets? An intraday analysis of FOMC minutes releases on individual equity volatility and returns," Review of Financial Economics, Elsevier, vol. 22(3), pages 86-97.
    2. 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.
    3. Liu, Shinhua, 2011. "The price effects of index additions: A new explanation," Journal of Economics and Business, Elsevier, vol. 63(2), pages 152-165, March.

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