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Is There an S&P 500 Index Effect?

Maria Kasch

University of Mannheim - Department of Finance

Asani Sarkar

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, G15

working papers series

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Date posted: March 21, 2009 ; Last revised: October 15, 2012

Suggested Citation

Kasch, Maria and Sarkar, Asani, Is There an S&P 500 Index Effect?. FRB of New York Staff Report . Available at SSRN: http://ssrn.com/abstract=1364539 or http://dx.doi.org/10.2139/ssrn.1364539

Contact Information

Maria Kasch (Contact Author)
University of Mannheim - Department of Finance ( email )
L5, 2, room 105
Mannheim, 68161
+49 621 181 1514 (Phone)
+49 621 181 1519 (Fax)
Asani Sarkar
Federal Reserve Bank of New York ( email )
Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)
HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html
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