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The Impact of Changes in the FTSE 100 Index

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  • Bryan Mase

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    Abstract

    This paper examines both the long-term and short-term impact associated with changes in the constituents of the FTSE 100 Index. We find that stocks exhibit positive (negative) abnormal long-run performance following their inclusion in (deletion from) the index. There is also evidence of significant short-term cumulative abnormal returns around the event. The reversal of these price effects suggests that short-term buying (selling) pressure (possibly from index trackers) moves prices temporarily away from equilibrium. An analysis of stock liquidity implies speculators may trade in advance of the announcement, while index trackers trade between the announcement and event dates. Finally, the organisation of the FTSE 100 Index enables us to conduct an analysis of stocks that just avoid being relegated from (fail to be promoted to) the FTSE 100.

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    Bibliographic Info

    Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Public Policy Discussion Papers with number 02-25.

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    Length: 37 pages
    Date of creation: Jul 2002
    Date of revision:
    Handle: RePEc:bru:bruppp:02-25

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

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