Abstract

http://ssrn.com/abstract=353460
 
 

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S&P 500 Index Additions and Earnings Expectations


Diane K. Denis


University of Pittsburgh - Katz School of Business

John J. McConnell


Purdue University

Alexei V. Ovtchinnikov


HEC Paris - Finance Department

Yun Yu


Wescott Financial Advisory Group LLC


Journal of Finance, Forthcoming

Abstract:     
Prior studies of stocks added to the S&P 500 Index report that Index inclusion is associated with a permanent increase in stock price. This result has been interpreted to mean that demand curves for stocks slope downward. A key premise underlying this interpretation is that Index inclusion provides no new information about the future prospects of the newly-included companies. We examine this premise empirically by analyzing changes in analysts' eps forecasts for newly-included companies from before to after Index inclusion and by comparing post-inclusion realized earnings to pre-inclusion earnings forecasts. We find that, relative to various benchmark companies, newly-included companies experience significant increases in eps forecasts and significant improvements in realized earnings. These results indicate that S&P Index inclusion is not an information-free event and, thus, undermine tests of the downward-sloping demand curve hypothesis that are based on S&P 500 Index additions.

JEL Classification: G29, G12, M41

Accepted Paper Series





Not Available For Download

Date posted: November 22, 2002  

Suggested Citation

Denis, Diane K. and McConnell, John J. and Ovtchinnikov, Alexei V. and Yu, Yun, S&P 500 Index Additions and Earnings Expectations. Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=353460

Contact Information

Diane K. Denis (Contact Author)
University of Pittsburgh - Katz School of Business ( email )
368B Mervis Hall
Pittsburgh, PA 15260
United States
412-624-0296 (Phone)
John J. McConnell
Purdue University ( email )
MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)
Alexei V. Ovtchinnikov
HEC Paris (Groupe HEC) - Finance Department ( email )
1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Yun Yu
Wescott Financial Advisory Group LLC ( email )
One Liberty Place, 42nd Floor
Philadelphia, PA 19010
United States
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