Comovement and Changes to the Ftse 100 Index

34 Pages Posted: 8 May 2004

See all articles by Periklis Kougoulis

Periklis Kougoulis

London Metropolitan University, Department of Economics, Finance and International Business

Jerry Coakley

University of Essex - Essex Business School

Date Written: May 2004

Abstract

We employ the Barberis, Shleifer and Wurgler (2004) methodology to investigate the impact of changes to the FTSE 100 index on return comovement over the 1992-2002 period. For FTSE stock inclusions the average increase in the beta coefficient is 0.38 in univariate regressions for weekly returns and 0.60 in bivariate regressions that control for the return on non-FTSE stocks. Stocks deleted from the index display the opposite pattern post exit. The results are robust to a number of factors including size, industry and non-trading effects. They are difficult to explain within a classical framework but complement those found for the US and Japan in supporting behavioral finance views of comovement.

Keywords: Behavioral finance, trading-based comovement, index funds

JEL Classification: G11, G12, G14

Suggested Citation

Kougoulis, Periklis and Coakley, Jerry, Comovement and Changes to the Ftse 100 Index (May 2004). EFMA 2004 Basel Meetings Paper; Essex Finance Centre Discussion Paper No. 04/13. Available at SSRN: https://ssrn.com/abstract=493003 or http://dx.doi.org/10.2139/ssrn.493003

Periklis Kougoulis

London Metropolitan University, Department of Economics, Finance and International Business ( email )

Economics Subject Group, LMBS
London EC2M 6SQ, EC2M 6SQ
United Kingdom

Jerry Coakley (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/staff/coakley.shtm

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