Playing Footsy with the FTSE 100 Index

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 Series