A Comprehensive Long-Term Analysis of S&P 500 Index Additions and Deletions

39 Pages Posted: 15 Nov 2015

See all articles by Kalok Chan

Kalok Chan

CUHK Business School

Hung Wan Kot

University of Macau - Department of Finance and Business Economics

Gordon Y. N. Tang

Hong Kong Baptist University

Date Written: August 8, 2013

Abstract

We investigate the long-term effects of S&P 500 index additions and deletions on a sample of stocks from 1962 to 2003 and find a significant long-term price increase for both added and deleted stocks, with deleted stocks outperforming added stocks. The long-term price increase for added stocks can be attributed to increases in institutional ownership, liquidity, and analyst coverage, and a decrease in the shadow cost in the long-term. However, while deletion has no significant effect on analyst coverage and shadow cost, we find a rebound in the institutional ownership and liquidity of deleted stocks. The difference in the long-term price increase of added and deleted stocks can be explained by analyst coverage and operating performance.

Keywords: S&P 500 Index Revision, Long-run Performance, Operating Performance, Information Quality, Liquidity

JEL Classification: G11, G12, G14

Suggested Citation

Chan, Kalok and Kot, Hung Wan and Tang, Gordon Y. N., A Comprehensive Long-Term Analysis of S&P 500 Index Additions and Deletions (August 8, 2013). Journal of Banking and Finance, Vol. 37, 2013. Available at SSRN: https://ssrn.com/abstract=2690667

Kalok Chan

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

Hung Wan Kot (Contact Author)

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

Macau

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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