Associated effects of index composition changes: an evidence from the S&P CNX Nifty 50 index

摘要

Purpose - The purpose of this paper is to test the long-term effects of price and volume with the help of Downward Sloping Demand Curve (DSDC) hypothesis, and also the short-term price and volume effects with the help of Price Pressure Hypothesis (PPH) for the index revisions on the S&P CNX Nifty 50 index. Design/methodology/approach - In order to report the long-term and short-term effects, the current study reviews two testable hypotheses, namely, DSDC hypothesis and PPH. The study has used the event study approach by including GARCH (1,1) conditional variance in the market model. Findings - The results report that, the added stocks experienced a significant increase in price and volume on the effective date; whereas the deleted stocks experienced significant volume levels and insignificant price levels on the effective date. Accordingly, the study finds support in favor of PPH. Research limitations/implications - The study could not find evidence to support the most studied DSDC hypothesis. Practical implications - Index reorganization presumably affects the fund managers, domestic as well as international investors. As a result, studying the effect of index changes is a subject of attention to academicians and investors alike. Originality/value - The study contributes to the body of knowledge on index inclusion and exclusion effects by providing Indian evidence on long-term and short-term price and volume effects, and also documenting contrary results to the previous Indian and global research works.