S&P 500 index inclusion announcements: does the S&P committee tell us something new?
Purpose - The purpose of this paper is to directly examine the information hypothesis of S&P 500 index inclusion announcements by investigating the degree to which information beyond Standard & Poor's eight stated criteria enters the inclusion decision. Design/methodology/approach - Isolating a sample of S&P 500 additions and their eligible candidates during 1987-2004, this paper employs logistic analysis that identifies factors Findings - The evidence indicates that, when choosing among new S&P 500 candidates, the S&P's committee relies primarily on publicly available information related to enterprise risk and historical performance. Material, private insight into future value-relevant information plays at most a small part in the selection. Research limitations/implications - The results suggest that index additions convey limited new information about added firms. Studies analysing index additions should start with the presumption that index inclusion announcements are information-free events, and focus on the consequences of index inclusions such as liquidity, awareness or arbitrage risk, in their relation to index premia. Originality/value - The results indicate that the previous evidence supporting the information hypothesis using the S&P 500 inclusions is not compelling.
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Volume (Year): 36 (2010)
Issue (Month): 5 (April)
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- William Elliott & Bonnie Van Ness & Mark Walker & Richard Warr, 2006. "What Drives the S&P 500 Inclusion Effect? An Analytical Source," Financial Management, Financial Management Association, vol. 35(4), Winter.
- 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.
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