Float Capitalization Index Weights in Dow Jones Stoxx Price and Volume Effects
Posted: 16 Feb 2002
Date Written: November 30, 2001
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: Suggested Citation