The effect of changes in index constitution: Evidence from the Korean stock market
This paper examines the effect of changes in the KOSPI 200 index. We find evidence of permanent price effects and partial return reversal for the event stocks. Trading volumes tend to significantly increase during the event period and remain relatively higher than before the event. We also find some evidence of the existence of anticipatory trading effect before the effective dates and volatility effect. The results show that the abnormal return still exists even after adopting factor models and excluding newly added stocks. The indexing methodology of KOSPI 200 conveys the valuable information that the added stocks showed good performance and better earnings relative to the market average and the deleted stocks showed vice versa. In conclusion, member changes in the KOSPI 200 index are not information-free events.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John R. Becker-Blease & Donna L. Paul, 2006. "Stock Liquidity and Investment Opportunities: Evidence from Index Additions," Financial Management, Financial Management Association International, vol. 35(3), pages 35-51, 09.
- Jeffrey Wurgler & Ekaterina Zhuravskaya, 2000.
"Does Arbitrage Flatten Demand Curves for Stocks?,"
Yale School of Management Working Papers
ysm152, Yale School of Management, revised 01 Nov 2001.
- John R. Becker-Blease & Donna L. Paul, 2006. "Stock Liquidity and Investment Opportunities: Evidence from Index Additions," Financial Management, Financial Management Association, vol. 35(3), Autumn.
- Isidore Masse & Robert Hanrahan & Joseph Kushner & Felice Martinello, 2000. "The effect of additions to or deletions from the TSE 300 Index on Canadian share prices," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 341-359, May.
- Bryan Mase, 2008. "Comovement in the FTSE 100 Index," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 4(1), pages 9-12.
- Barberis, Nicholas & Shleifer, Andrei & Wurgler, Jeffrey, 2005.
Journal of Financial Economics,
Elsevier, vol. 75(2), pages 283-317, February.
- Nicholas Barberis & Andrei Shleifer & Jeffrey Wurgler, 2002. "Comovement," Harvard Institute of Economic Research Working Papers 1953, Harvard - Institute of Economic Research.
- Nicholas Barberis & Andrei Shleifer & Jeffrey Wurgler, 2002. "Comovement," NBER Working Papers 8895, National Bureau of Economic Research, Inc.
- Barberis, Nicholas & Shleifer, Andrei & Wurgler, Jeffrey, 2005. "Comovement," Scholarly Articles 27867240, Harvard University Department of Economics.
- Shinhua Liu, 2000. "Changes in the Nikkei 500: New Evidence for Downward Sloping Demand Curves for Stocks," International Review of Finance, International Review of Finance Ltd., vol. 1(4), pages 245-267.
- Hsiu-Lang Chen, 2006. "On Russell index reconstitution," Review of Quantitative Finance and Accounting, Springer, vol. 26(4), pages 409-430, June.
- Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
- Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
- Ernest N. Biktimirov & Arnold R. Cowan & Bradford D. Jordan, 2004. "Do Demand Curves for Small Stocks Slope Down?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(2), pages 161-178.
- Beneish, Messod D. & Gardner, John C., 1995. "Information Costs and Liquidity Effects from Changes in the Dow Jones Industrial Average List," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 135-157, March.
- Mei Qiu & John Pinfold, 2008. "Price and trading volume reactions to index constitution changes: The Australian evidence," Managerial Finance, Emerald Group Publishing, vol. 34(1), pages 53-69.
- Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-90, July.
- Bildik, Recep & Gulay, Guzhan, 2008. "The effects of changes in index composition on stock prices and volume: Evidence from the Istanbul stock exchange," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 178-197.
When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:19:y:2010:i:4:p:258-269. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.