IDEAS home Printed from https://ideas.repec.org/p/zbw/cefswp/200404.html
   My bibliography  Save this paper

The index effect: Comparison of different measurement approaches

Author

Listed:
  • Kaserer, Christoph
  • Munzinger, Jakob
  • Wagner, Niklas

Abstract

The purpose of this paper is to examine additions and deletions of the S&P500. Competing event studies will be performed to analyze the announcement effect with different benchmarks. The main components of the paper are a Market Model based event study and a GARCH(1,1)-M Model study. The GARCH-M Model assumes a relation between variance and mean of an asset, where the variance tends to follow a long-run variance, and is dependent upon the stock's preceding abnormal return and variance. The event study examines approximately 350 stocks over 240 trading days. I have to confirm a positive index effect for additions and vice versa for deletions. Price, abnormal return, volume and variance of added stocks rise on the day after the announcement. My analysis reveal a semi-strong reversal and therefore are consistent with the Price Pressure Hypothesis and partly with the Imperfect Substitutes and the Visibility Hypothesis. The hypothesis of a significant lambda factor - the impact of the variance on the mean - has to be rejected for the additions and deletions of the S&P 500 for all event studies conducted. The analysis find significant ARCH and GARCH terms for the variance equation. The obtained lambda factors are not normally distributed. In the additions set the use of the GARCH(1,5)-M model seems to extenuate the index effect.

Suggested Citation

  • Kaserer, Christoph & Munzinger, Jakob & Wagner, Niklas, 2004. "The index effect: Comparison of different measurement approaches," CEFS Working Paper Series 2004-04, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
  • Handle: RePEc:zbw:cefswp:200404
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/48535/1/664485766.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    2. 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.
    3. Jeff Fleming, 2001. "The Economic Value of Volatility Timing," Journal of Finance, American Finance Association, vol. 56(1), pages 329-352, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:cefswp:200404. 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: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/fwtumde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.