Negative Returns on Addition to S&P 500 Index and Positive Returns on Deletion? New Evidence on Attractiveness of S&P 500 vs. S&P 400 Indexes

34 Pages Posted: 5 Oct 2020

See all articles by Anand M. Vijh

Anand M. Vijh

University of Iowa - Department of Finance

Jiawei (Brooke) Wang

University of Iowa - Department of Finance

Date Written: August 17, 2020

Abstract

In recent years, the majority of additions to and deletions from the S&P 500 index have been stocks that were previously or subsequently included in the S&P 400 index. The announcement returns of these changes have been the opposite of what has been documented for all S&P 500 additions and deletions in an extensive literature. During 2016-2019, such ‘upward additions’ to the S&P 500 index resulted in an average announcement excess return of -2.31% over a three-day period while ‘downward deletions’ resulted in an excess return of +1.21%. We explain these new results by the increasing ownership of S&P 400 stocks by institutional investors, the majority of whom are active fund managers. Our results thus show the increasing benefits of being included in the mid-cap S&P 400 index relative to being included in the large-cap S&P 500 index.

Suggested Citation

Vijh, Anand M. and Wang, Jiawei, Negative Returns on Addition to S&P 500 Index and Positive Returns on Deletion? New Evidence on Attractiveness of S&P 500 vs. S&P 400 Indexes (August 17, 2020). Available at SSRN: https://ssrn.com/abstract=3676340 or http://dx.doi.org/10.2139/ssrn.3676340

Anand M. Vijh (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States
319-335-0921 (Phone)
319-335-3609 (Fax)

Jiawei Wang

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

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