What Happens When a Stock is Added to the Nasdaq-100 Index? What Doesn't Happen?
34 Pages Posted: 28 Oct 2014
Date Written: October 23, 2014
Additions to the Nasdaq-100 Index are based primarily on market capitalization rather than on judgments about a firm’s stature in its industry. We analyze abnormal returns upon announcement that a stock will be added to the Nasdaq-100 Index in a multivariate analysis that incorporates several possible alternative factors. We find that only liquidity variables are significant, but that factors representing feedback effects on the firm’s operations and level of managerial effort are not. This evidence suggests that additions to the Nasdaq-100 Index are associated with liquidity benefits but not with certification effects of the type associated with additions to the S&P indexes.
Keywords: Index addition, Index inclusion, Nasdaq, listings, liquidity, regression discontinuity design, bid/ask spread
JEL Classification: G11, G14, G19
Suggested Citation: Suggested Citation