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

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Author Info

  • William Elliott
  • Bonnie Van Ness
  • Mark Walker
  • Richard Warr

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 ofabnormal 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.

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Bibliographic Info

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

Volume (Year): 35 (2006)
Issue (Month): 4 (Winter)
Pages:

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Handle: RePEc:fma:fmanag:elliottvannessswalkerwarr06

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Cited by:
  1. Rashiqa Kamal & Edward R. Lawrence & George McCabe & Arun J. Prakash, 2012. "Additions to S&P 500 Index: not so informative any more," Managerial Finance, Emerald Group Publishing, vol. 38(3), pages 380-402, March.
  2. 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.

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