The Disappearing Index Effect

51 Pages Posted: 13 Dec 2022 Last revised: 22 Dec 2022

See all articles by Robin M. Greenwood

Robin M. Greenwood

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Marco Sammon

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 21, 2022

Abstract

The abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 3.4% in the 1980s and 7.6% in the 1990s to 0.8% over the past decade. This has occurred despite a significant increase in the percentage of stock market assets linked to the index. A similar pattern has occurred for index deletions, with large negative abnormal returns on average during the 1980s and 1990s, but only -0.6% between 2010 and 2020. We investigate the drivers of this surprising phenomenon and discuss the implications for market efficiency.

Keywords: index inclusion, passive ownership, market efficiency

JEL Classification: G14

Suggested Citation

Greenwood, Robin M. and Sammon, Marco, The Disappearing Index Effect (December 21, 2022). Available at SSRN: https://ssrn.com/abstract=4294297 or http://dx.doi.org/10.2139/ssrn.4294297

Robin M. Greenwood

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marco Sammon (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

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