Is There an S&P 500 Index Effect?

FIRS 2013

56 Pages Posted: 6 Nov 2012 Last revised: 6 Jun 2014

See all articles by Maria Kasch

Maria Kasch

University of Mannheim - Department of Finance

Asani Sarkar

Federal Reserve Bank of New York

Date Written: March 2014


This paper finds that the permanent changes in market value and return comovement, previously attributed to S&P 500 index additions, reflect well-established regularities in asset returns independent of index membership. Specifically, we document that index additions are preceded by extraordinary market and earnings performance of the event firms and that – after accounting for this performance – the additions have no permanent effect on the firms’ market value and standard measures of systematic risk. The permanent value effect which has been attributed to index membership is a manifestation of the momentum in returns (Jegadeesh and Titman (1993)), while the change in comovement reflects declines in the loadings on size and value factors (Fama and French (1993)). Our results show the importance of addressing endogeneity for causal inference in event studies.

Keywords: S&P 500 inclusions, Pre-inclusion performance, Factor betas, Price and earnings momentum, Value effect

JEL Classification: G12, G15

Suggested Citation

Kasch, Maria and Sarkar, Asani, Is There an S&P 500 Index Effect? (March 2014). FIRS 2013, Available at SSRN: or

Maria Kasch (Contact Author)

University of Mannheim - Department of Finance ( email )

L5, 2, room 105
Mannheim, 68161
+49 621 181 1514 (Phone)
+49 621 181 1519 (Fax)

Asani Sarkar

Federal Reserve Bank of New York ( email )

Research Department
33 Liberty Street
New York, NY 10045
United States
212-720-8943 (Phone)
212-720-1582 (Fax)


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