Investor Awareness and Market Segmentation: Evidence from S&P 500 Index Changes

57 Pages Posted: 22 Mar 2002

See all articles by Honghui Chen

Honghui Chen

Department of Finance, University of Central Florida

Vijay Singal

Virginia Tech

Gregory Noronha

University of Washington, Tacoma - Milgard School of Business

Date Written: April 2002

Abstract

Several studies have found that stock price changes resulting from firms added to the S&P 500 index can be best exp lained by a downward sloping demand curve. In this paper, we study price effects around both additions and deletions and find that the price effect of index changes is consistent with Merton's (1987) investor-awareness and market segmentation hypothesis. We find that the reduction in shadow cost of incomplete diversification that follows additions is correlated with abnormal returns accruing to the added stocks. We also find that the asymmetric price effects of additions and deletions that have not been explained by empirical studies thus far are consistent with market segmentation.

Note: Previous title: S&P 500 Index Changes and Investor Awareness

JEL Classification: G14

Suggested Citation

Chen, Honghui and Singal, Vijay and Noronha, Gregory, Investor Awareness and Market Segmentation: Evidence from S&P 500 Index Changes (April 2002). EFA 2002 Berlin Meetings Presented Paper. Available at SSRN: https://ssrn.com/abstract=302884 or http://dx.doi.org/10.2139/ssrn.302884

Honghui Chen

Department of Finance, University of Central Florida ( email )

PO Box 161400
Orlando, FL 32816
United States
407-823-0895 (Phone)

Vijay Singal (Contact Author)

Virginia Tech ( email )

Blacksburg, VA 24061
United States
5402317750 (Phone)

Gregory Noronha

University of Washington, Tacoma - Milgard School of Business ( email )

1900 Commerce Street
Campus Box 358420
Tacoma, WA 98402-3100
United States

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