What Happens When a Stock is Added to the Nasdaq-100 Index? What Doesn't Happen?

34 Pages Posted: 28 Oct 2014

See all articles by Susana Yu

Susana Yu

Iona College

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business

Kishore Tandon

CUNY Baruch College - Zicklin School of Business

Date Written: October 23, 2014

Abstract

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

Yu, Susana and Webb, Gwendolyn P. and Tandon, Kishore, What Happens When a Stock is Added to the Nasdaq-100 Index? What Doesn't Happen? (October 23, 2014). Available at SSRN: https://ssrn.com/abstract=2513917 or http://dx.doi.org/10.2139/ssrn.2513917

Susana Yu (Contact Author)

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

Gwendolyn P. Webb

City University of New York (CUNY) - Baruch College - Zicklin School of Business ( email )

Department of Economics & Finance
P.O. Box B13-289 1 Bernard Baruch Way
New York, NY 10010
United States
646-312-3485 (Phone)

Kishore Tandon

CUNY Baruch College - Zicklin School of Business ( email )

55 Lexington Avenue
New York, NY 10010
United States
(646) 312-3468 (Phone)
(646) 312-3451 (Fax)

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