Changes in the Constituents of the S&P 500 Index and the Performance of the Index

21 Pages Posted: 25 Sep 2011

See all articles by Ebenezer Asem

Ebenezer Asem

University of Lethbridge

Shamsul Alam

University of Lethbridge

Date Written: September 24, 2011

Abstract

We investigate whether performance enhancement motivates the changes to the constituents of the Standard and Poor’s 500 Index, and whether these changes in fact enhance the Index’s performance. To test these, we compare the performance of the stocks that were deleted from the Index to the performance of those that were added before and after the delete/add events. Our results show that stocks that were added to the Index outperform those that were replaced before the events, suggesting that performance enhancement is a driver of the S&P committee’s delete/add decisions. Also, we find that the stocks that were added to the Index outperform those that were replaced after the events, indicating the delete/add events enhance the Index’s performance.

Keywords: Porfolio performance, S&P 500 index constituents, Index perrformance, Event studies

JEL Classification: G10, G11

Suggested Citation

Asem, Ebenezer and Alam, Shamsul, Changes in the Constituents of the S&P 500 Index and the Performance of the Index (September 24, 2011). Midwest Finance Association 2012 Annual Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1933197 or http://dx.doi.org/10.2139/ssrn.1933197

Ebenezer Asem (Contact Author)

University of Lethbridge ( email )

4401 University Drive
Lethbridge, Alberta T1K 3M4
Canada

Shamsul Alam

University of Lethbridge ( email )

4401 University Drive
Lethbridge, Alberta T1K 3M4
Canada

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