Price responses to index additions and deletions: What drives the index effect?

摘要

In this paper we look at the effects of index inclusions (exclusions) on stocks from the U.S market as well as foreign and global markets. We analyze 41 different indices for a total of 7,300 additions from 2000 to 2015, using one of the most extensive samples of additions and deletions ever collected. Our findings show positive abnormal returns for additions and negative returns for deletions in all markets, with varying degrees of magnitude. We attribute these results to an increase in liquidity as well as an increase in visibility by foreign investors that leads to a change in Global and Local Betas for stocks. We also find significant differences in these returns depending on the market sentiment, and whether these are first time additions, or transfers from other indices.