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Compositional changes in the FTSE100 index from the standpoint of an arbitrageur

Author

Listed:
  • Kwaku Opong
  • Antonios Siganos

    (Adam Smith Business School, Glasgow University)

Abstract

We explore the profitability of a strategy that is based on the quarterly addition/deletion revisions of the FTSE100 index and of a strategy that is based on the irregular additions of reserve companies on the list of firms to be included in the FTSE100. We estimate the transaction cost based on whether investors buy/sell physical shares and contracts for difference (CFDs). We find that investors can enjoy significant net profitability from an investment strategy based on firms on the FTSE reserved list. An investment strategy based on the quarterly revisions of the FTSE100 is profitable as long as traders buy/sell CFDs and have significant negotiation power to trade within the bid and ask spread. This study supports the price pressure and attention grabbing news hypotheses. Our results also show evidence against stock market efficiency.

Suggested Citation

  • Kwaku Opong & Antonios Siganos, 2013. "Compositional changes in the FTSE100 index from the standpoint of an arbitrageur," Journal of Asset Management, Palgrave Macmillan, vol. 14(2), pages 120-132, April.
    • Handle: RePEc:pal:assmgt:v:14:y:2013:i:2:d:10.1057_jam.2013.8
    DOI: 10.1057/jam.2013.8
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    References listed on IDEAS

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    Cited by:

    1. Ernest N. Biktimirov & Yuanbin Xu, 2019. "Asymmetric stock price and investor awareness reactions to changes in the Nasdaq 100 index," Journal of Asset Management, Palgrave Macmillan, vol. 20(2), pages 134-145, March.

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