A Comprehensive Long-Term Analysis of S&P 500 Index Additions and Deletions
39 Pages Posted: 15 Nov 2015
Date Written: August 8, 2013
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
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