The Disappearing Index Effect

48 Pages Posted: 12 Dec 2022 Last revised: 7 Jul 2024

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 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 potential drivers of this surprising phenomenon and discuss the implications for market efficiency.

Suggested Citation

Greenwood, Robin M. and Sammon, Marco, The Disappearing Index Effect (December 2022). NBER Working Paper No. w30748, Available at SSRN: https://ssrn.com/abstract=4299634

Robin M. Greenwood (Contact Author)

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

Harvard Business School ( email )

Boston, MA 02163
United States

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