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The long-term performance of index additions and deletions: Evidence from the Hang Seng Index

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  • Kot, Hung Wan
  • Leung, Harry K.M.
  • Tang, Gordon Y.N.

Abstract

We investigate the long-term performance of firms added to or deleted from the Hang Seng Index from 1986 to 2008. The stocks newly deleted from the Hang Seng Index have abnormal returns over a 5-year holding period and the newly added stocks do not. The deleted stocks outperform the added stocks, with the difference resulting from poorly performing state-owned added stocks and better performing family-owned deleted stocks. The operating performance of the deleted stocks improves in the post-event period and that of the added stocks does not. The liquidity and beta of the added stocks decrease and the analyst coverage increases. Meanwhile, the liquidity and analyst coverage of the deleted stocks decrease. Regression analyses show that changes in operating performance are the most important factors explaining the long-term stock performance of added and deleted stocks.

Suggested Citation

  • Kot, Hung Wan & Leung, Harry K.M. & Tang, Gordon Y.N., 2015. "The long-term performance of index additions and deletions: Evidence from the Hang Seng Index," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 407-420.
    • Handle: RePEc:eee:finana:v:42:y:2015:i:c:p:407-420
    DOI: 10.1016/j.irfa.2015.09.006
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    More about this item

    Keywords

    Index revisions; Hang Seng Index; Long-term performance; Operating performance; Analyst coverage;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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