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New Evidence on Stock Price Effects Associated with Charges in the S&P 500 Index

46 Pages Posted: 11 Nov 2008  

Anthony W. Lynch

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Richard R. Mendenhall

University of Notre Dame - Department of Finance

Date Written: June 1996

Abstract

Since October 1989, Standard and Poor s has (when possible) announced changes in the composition of the S&P 500 index one week in advance. Because index funds hold S&P 500 stocks to minimize tracking error, index composition changes since this date provide an opportunity to examine the market reaction to an anticipated change in the demand for a stock. Using post-October-1989 data, we document significantly positive (negative) post-announcement abnormal returns that are only partially reversed following additions (deletions). These results indicate the existence of temporary price pressure and downward-sloping log-run demand curves for stocks and represent a violation of market efficiency.

Keywords: S&P 500 Changes, Stock Demand Curves, Market Efficiency, Volume Price Relationships

Suggested Citation

Lynch , Anthony W. and Mendenhall, Richard R., New Evidence on Stock Price Effects Associated with Charges in the S&P 500 Index (June 1996). NYU Working Paper No. FIN-95-028. Available at SSRN: https://ssrn.com/abstract=1298790

Anthony Lynch (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
(212) 998-0350 (Phone)
(212) 995-4233 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Richard Mendenhall

University of Notre Dame - Department of Finance ( email )

330 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6076 (Phone)
574-631-5255 (Fax)

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