Is There an S&P 500 Index Effect?

Abstract:     
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