Price and trading volume reactions to index constitution changes

Abstract

Purpose -US studies show significant price effects when shares enter or leave an index during index revisions. Studies on other markets generally yield similar results with smaller price reactions. This study aims to examine the price effects resulting from revisions to the Australian S&P/ASX 100 and 300 indices. Design/methodology/approach -The event study methodology is used to examine abnormal price and volume effects around the announcement dates and implementation dates of index revisions. Findings -In contrast with studies on US index changes, this study shows no abnormal returns for additions to or deletions from the S&P/ASX 100 index and only a weak effect for the S&P/ASX 300, which showed a median abnormal return of þ 1.06 per cent on the implementation date for additions and À2.78 per cent for deletions. Research limitations/implications -These results give a cautionary warning to those who wish to speculate on the changes to index constituents on the Australian market, or other similar markets where the strength of the index effect has not been clearly quantified. Originality/value -This study adds to the body of knowledge on the index effect by providing Australian evidence.

Index Informativeness: An Empirical Study on Indonesia Stock Exchange

“…(Yu et al, 2015) found that the influencing factor was due to the increased attention (awareness) of analysts on the company's shares so that in the end it had an impact on increasing company liquidity. (Qiu and Pinfold, 2007) in their research on companies that enter and exit the S&P Index (ASX100 and ASX300) in Australia show that there is generally no market reaction to changes in the list of companies (in and out) of the S&P Index.…”

The effect of changes in index constitution: Evidence from the Korean stock market

“…Starting in the mid-1990s, some studies began examining other indices (see, e.g., Beneish & Gardner, 1995;Chen, 2006) and in recent years researchers have started to study indices of developed markets outside the U.S. (see, e.g., Liu, 2000;Masse et al, 2000;Masse, 2007;Qiu & Pinfold, 2008). However, research on indices of emerging markets is still in its early stages (see, Bildik & Gulay, 2008;Elayan et al, 2000).…”

Forecasting index changes in the German DAX family

“…Lee et al (2008) document significant abnormal returns for S&P 500 additions during the post-trading session after the announcement. Other studies that find abnormal post-announcement returns include Harris and Gurel (1986), Goetzmann andGarry (1986), Shleifer (1986), Jain (1987), and Beneish and Whaley (1996) for the S&P 500, Petajisto (2011) and Chang et al (2014) for the Russel2000, Deininger et al (2000) for the German DAX and MDAX, Doeswijk (2005) for the AEX index, Chakrabarti et al (2005) for international MSCI indices, Liu (2006) and Liu (2011) for the Nikkei225, Mazouz and Saadouni (2007) and Mase (2007) for the FTSE100, Qiu and Pinfold (2007) for the ASX300, and Yun and Kim (2010) for the KOSPI 200. Similar to the German DAX, many of these indices are based on a publicly available rule-based methodology.…”