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Is There an S&P 500 Index Effect?

Maria Kasch

University of Mannheim - Department of Finance

Asani Sarkar

Federal Reserve Bank of New York

March 2014

FIRS 2013

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.

Number of Pages in PDF File: 56

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

JEL Classification: G12, G15

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Date posted: November 6, 2012 ; Last revised: June 6, 2014

Suggested Citation

Kasch, Maria and Sarkar, Asani, Is There an S&P 500 Index Effect? (March 2014). FIRS 2013. Available at SSRN: https://ssrn.com/abstract=2171235 or http://dx.doi.org/10.2139/ssrn.2171235

Contact Information

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)
HOME PAGE: http://www.newyorkfed.org/research/economists/sarkar/pub.html
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