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The Price Response to KIKKEI 225 Stocks Index Adjustments

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  • Chia-Jung Tu

Abstract

Using Nikkei 225 Index adjustment data, this study examines price response to changes in index composition. This study demonstrates that prices of stocks added to and deleted from the Nikkei 225 Index respectively fluctuate accordingly on the announcement day. These price trends then reverse during the post-announcement period. The results are consistent with the price pressure hypothesis. By classifying the composite stocks into two categories, this study finds that small-scale stocks exhibit larger price responses than large-scale stocks. In addition, the results show that newly added stocks with upward revised earnings forecasts earn more abnormal returns during the post-announcement period. The results shed more light on the information content associated index adjustments in the Japanese stock market.

Suggested Citation

  • Chia-Jung Tu, 2012. "The Price Response to KIKKEI 225 Stocks Index Adjustments," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(4), pages 59-71.
    • Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:59-71
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Nikkei 225 Index; price responses; earnings forecast revision;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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