Is There an S&P 500 Index Effect?
University of Mannheim - Department of Finance
Federal Reserve Bank of New York
FRB of New York Staff Report
We find that the firms included in the S&P 500 index are characterized by large increases in earnings, appreciation in market value and positive price momentum in the period preceding their index inclusion. This strong pre-inclusion performance predicts (1) the permanent increase of market value and (2) the change in return comovement, reflected in declines of size, value and momentum betas, following index inclusion. Non-event firms with similar performance experience similar appreciation in value and changes in comovement coincident with the event firms. Contrary to the consensus in the literature, our results indicate that – after accounting for the firms’ extraordinary pre-inclusion performance – index inclusion has no permanent effect on value and comovement.
Number of Pages in PDF File: 54
Keywords: S&P 500 inclusions, Pre-inclusion performance, Factor betas, Price and earnings momentum, Value effect
JEL Classification: G12, G15working papers series
Date posted: March 21, 2009 ; Last revised: October 15, 2012
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