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


  • William Elliott
  • Bonnie Van Ness
  • Mark Walker
  • Richard Warr


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 ofabnormal 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.

Suggested Citation

  • 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.
  • Handle: RePEc:fma:fmanag:elliottvannessswalkerwarr06

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    References listed on IDEAS

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    4. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    5. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    6. Stulz, Rene M. & Williamson, Rohan, 2003. "Culture, openness, and finance," Journal of Financial Economics, Elsevier, vol. 70(3), pages 313-349, December.
    7. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich-to-Poor Capital Flows," American Economic Review, American Economic Association, vol. 94(2), pages 53-58, May.
    9. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    10. repec:hrv:faseco:30747160 is not listed on IDEAS
    11. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
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    Cited by:

    1. Honghui Chen & Vijay Singal & Robert F. Whitelaw, 2015. "Comovement Revisited," NBER Working Papers 21281, National Bureau of Economic Research, Inc.
    2. repec:eme:mfipps:v:36:y:2010:i:3:p:380-402 is not listed on IDEAS
    3. Karel Hrazdil, 2010. "S&P 500 index inclusion announcements: does the S&P committee tell us something new?," Managerial Finance, Emerald Group Publishing, vol. 36(5), pages 368-393, April.
    4. repec:kap:rqfnac:v:49:y:2017:i:4:d:10.1007_s11156-017-0617-1 is not listed on IDEAS

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