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Converting TSX 300 Index to S&P/TSX Composite Index: Effects on the Index’s Capitalization and Performance

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  • Shamsul Alam
  • Ebenezer Asem
  • Shirin Shams

Abstract

In May 2002, the TSX (Toronto Stock Exchange) 300 Index was converted to S&P/TSX Composite Index, increasing the flexibility of stock addition to, and deletion from, the Index. We study whether the increased flexibility enhances the Index’s ability to mimic the Canadian equity market performance and to represent the equity market. Our results show that the S&P/TSX Composite Index captures a higher proportion of the equity market and has a lower tracking error than the TSX 300 Index. This suggests that flexibility in updating the constituents of an index is an important determinant of the index’s ability to represent the underlying market.

Suggested Citation

  • Shamsul Alam & Ebenezer Asem & Shirin Shams, 2016. "Converting TSX 300 Index to S&P/TSX Composite Index: Effects on the Index’s Capitalization and Performance," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(6), pages 250-250, June.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:6:p:250
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    References listed on IDEAS

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    1. Honghui Chen & Gregory Noronha & Vijay Singal, 2004. "The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation," Journal of Finance, American Finance Association, vol. 59(4), pages 1901-1930, August.
    2. Shleifer, Andrei, 1986. "Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
    3. Lynch, Anthony W & Mendenhall, Richard R, 1997. "New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index," The Journal of Business, University of Chicago Press, vol. 70(3), pages 351-383, July.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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