Anticipatory effects in the FTSE 100 index revisions
AbstractThis paper examines the price impact of trading due to expected changes in theFTSE 100 index composition. We focus on the latter index because it employs publicly-known objective criteria to determine membership and hence it provides a natural contextto investigate anticipatory trading e ects. We propose a panel-regression event study thatbacks out these anticipatory e ects by looking at the price impact of the ex-ante proba-bility of changing index membership status. Our ndings reveal that anticipative tradingexplains about 40% and 23% of the cumulative abnormal returns of additions and deletions,respectively. We con rm these in-sample results out of sample by tracking the performanceof a trading strategy that relies on the addition/deletion probability estimates. The perfor-mance is indeed very promising in that it entails an average daily excess return of 11 basispoints over the FTSE 100 index.
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Bibliographic InfoPaper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 345.
Date of creation: 09 Dec 2013
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
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