The Long-Term Performance of Index Additions and Deletions: Evidence from the Hang Seng Index

52 Pages Posted: 15 Nov 2015 Last revised: 1 May 2016

See all articles by Hung Wan Kot

Hung Wan Kot

University of Macau - Department of Finance and Business Economics

Harry Leung

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Gordon Y. N. Tang

Hong Kong Baptist University

Date Written: June 6, 2015

Abstract

We investigate the long-term performance of firms added to or deleted from the Hang Seng Index from 1986 to 2008. The stocks newly deleted from the Hang Seng Index have abnormal returns over a 5-year holding period and the newly added stocks do not. The deleted stocks outperform the added stocks, with the difference resulting from poorly performing state-owned added stocks and better performing family-owned deleted stocks. The operating performance of the deleted stocks improves in the post-event period and that of the added stocks does not. The liquidity and beta of the added stocks decrease and the analyst coverage increases. Meanwhile, the liquidity and analyst coverage of the deleted stocks decrease. Regression analyses show that changes in operating performance are the most important factors explaining the long-term stock performance of added and deleted stocks.

Keywords: Index revisions, Hang Seng Index, Long-term performance, Operating performance, Analyst coverage

JEL Classification: G10; G14

Suggested Citation

Kot, Hung Wan and Leung, Harry and Tang, Gordon Y. N., The Long-Term Performance of Index Additions and Deletions: Evidence from the Hang Seng Index (June 6, 2015). International Review of Financial Analysis, 2015, Vol 42, 407-420. Available at SSRN: https://ssrn.com/abstract=2690662

Hung Wan Kot (Contact Author)

University of Macau - Department of Finance and Business Economics ( email )

Macau

Harry Leung

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

Gordon Y. N. Tang

Hong Kong Baptist University ( email )

Dept. of Finance and Decision Sciences
Kowloon
Hong Kong
852-3411-7563 (Phone)
852-3411-5585 (Fax)

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