Float Capitalization Index Weights in Dow Jones Stoxx Price and Volume Effects

Posted: 16 Feb 2002

See all articles by Torben Voetmann

Torben Voetmann

The Brattle Group; University of San Francisco

Robert Neumann

Danske Bank - Danske Markets

Date Written: November 30, 2001

Abstract

The implementation of float capitalization in the Dow Jones STOXXSM changed the demand for large European stocks. In this paper, we test the change in demand using the imperfect substitution hypothesis and the price-pressure hypothesis. We find a temporary negative price effect of 1.33 percent for the companies that experience a decrease in index weights. In contrast, there is a temporary positive price effect of 0.50 percent for the companies that experience an increase in index weights. Our results support the price-pressure hypothesis and we find no evidence to support downward sloping demand curves.

Keywords: Float Capitalization; Price Pressure; Demand Curves; Index Weights; Liquidity Effects

JEL Classification: G11; G14

Suggested Citation

Voetmann, Torben and Neumann, Robert, Float Capitalization Index Weights in Dow Jones Stoxx Price and Volume Effects (November 30, 2001). EFMA 2002 London Meetings. Available at SSRN: https://ssrn.com/abstract=299922 or http://dx.doi.org/10.2139/ssrn.299922

Torben Voetmann (Contact Author)

The Brattle Group ( email )

201 Mission Street
Suite 2800
San Francisco, CA 94105
United States
415-217-1000 (Phone)

HOME PAGE: http://www.brattle.com

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

Robert Neumann

Danske Bank - Danske Markets ( email )

Holmens Kanal 2-12
DK-1092 Copenhagen K
Denmark

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