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Liquidity Effects due to Information Costs from Changes in the FTSE 100 List

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Author Info
A. Gregoriou
CHRISTOS IOANNIDIS ()

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Abstract

In this paper we examine effect on the returns of firms that have been included to and deleted from the FTSE 100 over the time period of 1984-2001. Like the S&P 500 listing studies, we find that the price and trading volume of newly listed (deleted) firms increases (decreases). The evidence is consistent with the information cost/liquidity explanation. This is because investors hold stocks with more (less) available information, consequently implying that they have lower (higher) trading costs. This explains the increase (decrease) in the stock price and trading volume of newly listed (deleted) stocks to (from) the FTSE 100 List.

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Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 03-02.

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Length: 30 pages
Date of creation: Jan 2003
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Handle: RePEc:bru:bruedp:03-02

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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  1. Pruitt, Stephen W & Wei, K C John, 1989. " Institutional Ownership and Changes in the S&P 500," Journal of Finance, American Finance Association, vol. 44(2), pages 509-13, June. [Downloadable!] (restricted)
  2. Harris, Lawrence E & Gurel, Eitan, 1986. " Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures," Journal of Finance, American Finance Association, vol. 41(4), pages 815-29, September. [Downloadable!] (restricted)
  3. Roll, Richard, 1984. " A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-39, September. [Downloadable!] (restricted)
  4. Barry, Christopher B. & Brown, Stephen J., 1984. "Differential information and the small firm effect," Journal of Financial Economics, Elsevier, vol. 13(2), pages 283-294, June. [Downloadable!] (restricted)
  5. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July. [Downloadable!] (restricted)
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  6. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December. [Downloadable!] (restricted)
  7. Scholes, Myron S, 1972. "The Market for Securities: Substitution versus Price Pressure and the Effects of Information on Share Prices," Journal of Business, University of Chicago Press, vol. 45(2), pages 179-211, April. [Downloadable!] (restricted)
  8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  9. Hess, Alan C & Frost, Peter A, 1982. " Tests for Price Effects of New Issues of Seasoned Securities," Journal of Finance, American Finance Association, vol. 37(1), pages 11-25, March. [Downloadable!] (restricted)
  10. Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-88, June. [Downloadable!] (restricted)
  11. Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-90, July. [Downloadable!] (restricted)
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