New Evidence on Stock Price Effects Associated with Charges in the S&P 500 Index
Anthony W. Lynch
New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)
Richard R. Mendenhall
University of Notre Dame - Department of Finance
NYU Working Paper No. FIN-95-028
Since October 1989, Standard and Poor s has (when possible) announced changes in the composition of the S&P 500 index one week in advance. Because index funds hold S&P 500 stocks to minimize tracking error, index composition changes since this date provide an opportunity to examine the market reaction to an anticipated change in the demand for a stock. Using post-October-1989 data, we document significantly positive (negative) post-announcement abnormal returns that are only partially reversed following additions (deletions). These results indicate the existence of temporary price pressure and downward-sloping log-run demand curves for stocks and represent a violation of market efficiency.
Number of Pages in PDF File: 46
Keywords: S&P 500 Changes, Stock Demand Curves, Market Efficiency, Volume Price Relationshipsworking papers series
Date posted: November 11, 2008
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