The Evolving Index Effect: Evidence from Australia

34 Pages Posted: 15 Apr 2024

See all articles by Clint Howard

Clint Howard

Robeco Quantitative Investments

Date Written: April 2, 2024

Abstract

Evidence around the price response of stocks to index change announcements (the index effect) in Australia is mixed. In contrast to the U.S. market, results often point towards the absence of any index effects in Australia. By studying a comprehensive set of index announcements across S&P/ASX indexes, I find significant heterogeneity in the index effect across Australian securities. Additions to small capitalization indexes exhibit economically meaningful index effects, whereas additions to large capitalization indexes are largely insignificant. Unscheduled additions experience larger announcement date returns but subsequent reversals compared to scheduled additions. These results are consistent with both information and price pressure effects from index trading.

Keywords: index effect, Australia, unscheduled, event study, passive investing, S&P/ASX

JEL Classification: G11, G12, G14

Suggested Citation

Howard, Clint, The Evolving Index Effect: Evidence from Australia (April 2, 2024). Available at SSRN: https://ssrn.com/abstract=4779993 or http://dx.doi.org/10.2139/ssrn.4779993

Clint Howard (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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