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The S&P 500 Index Effect in Continuous Time: Evidence from Overnight, Intraday and Tick-by-Tick Stock Price Performance

Author

Listed:
  • Chris Brooks

    (ICMA Centre, University of Reading)

  • Konstantina Kappou

    (Credit Suisse)

  • Charles Ward

    (ICMA Centre, University of Reading)

Abstract

The advent of index tracking early in the 1970s and the continuous growth of assets tied to the S&P 500 index have enforced perceptions of the importance of becoming an index-member, due to increased demand by index fund participants for the stocks involved in index composition changes. This study focuses on S&P 500 inclusions and examines the impact of potential overnight price adjustment after the announcement of an S&P 500 index change. We find evidence of a significant overnight price change that diminishes the profits available to speculators although there are still profits available from the first day after announcement until a few days after the actual event. More importantly observing the tick-by-tick stock price performance of the key days of the event window for the first time, we find evidence of consistent trading patterns during trading hours over inclusion event. A separate analysis of two different sub-periods as well as of NASDAQ and NYSE listed stocks allows for a detailed examination of the price and volume effect in continuous time.

Suggested Citation

  • Chris Brooks & Konstantina Kappou & Charles Ward, 2007. "The S&P 500 Index Effect in Continuous Time: Evidence from Overnight, Intraday and Tick-by-Tick Stock Price Performance," ICMA Centre Discussion Papers in Finance icma-dp2007-05, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:icmadp:icma-dp2007-05
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    File URL: http://www.icmacentre.ac.uk/files/pdf/dps/DP2007-05.pdf
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    More about this item

    Keywords

    Index effect; S&P 500; market efficiency; price pressure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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