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What Drives the S&P 500 Inclusion Effect? An Analytical Survey

  • William B. Elliott
  • Bonnie F. Ness
  • Mark D. Walker
  • Richard S. Wan

We present an analytical survey of the explanations-price pressure, downward-sloping demand curves, improved liquidity, improved operating performance, and increased investor awareness-for the increase in stock value associated with inclusion in the S&P 500 Index. We find that increased investor awareness is the primary factor behind the cross-section of abnormal announcement returns. We also find some evidence of temporary price pressure around the inclusion date. We find no evidence that long-run downward-sloping demand curves for stocks, anticipated improvements in operating performance, or increased liquidity are related to the cross-section of announcement or inclusion returns. Copyright (c) 2006 Financial Management Association International.

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Article provided by Financial Management Association International in its journal Financial Management.

Volume (Year): 35 (2006)
Issue (Month): 4 (December)
Pages: 31-48

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Handle: RePEc:bla:finmgt:v:35:y:2006:i:4:p:31-48
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