Is There an S&P 500 Index Effect?
University of Mannheim - Department of Finance
Federal Reserve Bank of New York
November 5, 2012
1st Luxembourg Asset Management Summit 2012
9th European Winter Finance Summit (Skinance) 2013
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: November 6, 2012 ; Last revised: January 9, 2013
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