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Playing Footsy with the FTSE 100 Index
Jay Dahya City University of New York, CUNY Baruch College, Zicklin School of Business January 11, 2006 Abstract: Studies on S&P 500 Index changes are unable to reject index compiler certification in explaining permanent stock price effects to index additions. The FTSE 100 Index comprises one hundred stocks ranked highest by market capitalization, and therefore precludes certification. FTSE 100 Index additions elicit a permanent positive stock price effect, whilst deletions reveal a rebound following announcement period losses. Both price effects can be explained by changes in earnings expectations, information production, and investor awareness. These results challenge belief that index changes (absent certification) are information-free events and long-run demand curves for stocks slope downward.
Keywords: Equity, Index, FTSE 100 JEL Classifications: G15, G11, G12, G10 Working Paper SeriesDate posted: March 22, 2005 ; Last revised: March 19, 2006Suggested CitationContact Information
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