Comovement after Joining an Index: Spillovers of Nonfundamental Effects

49 Pages Posted: 17 Jun 2004

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Dong Wook Lee

Korea University

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston

Multiple version iconThere are 2 versions of this paper

Date Written: June 5, 2006

Abstract

This study considers the case of two overlapping categories in the context of recent category models. Specifically, we examine whether investor sentiment and market frictions specific to one category can affect the returns on assets belonging to the other category. With recent additions of several real estate investment trusts (REITs) into general stock market indices as a natural experiment, we find support for spillovers of such nonfundamental effects, as evidenced by the increased return correlation between REITs that remain outside the index and the index stocks. Further analysis reveals that market frictions play a greater role than investor sentiment.

Keywords: category model, spillover effect, REITs, stock market index

JEL Classification: G11, G12

Suggested Citation

Ambrose, Brent W. and Lee, Dong Wook and Peek, Joe, Comovement after Joining an Index: Spillovers of Nonfundamental Effects (June 5, 2006). Available at SSRN: https://ssrn.com/abstract=556402 or http://dx.doi.org/10.2139/ssrn.556402

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Dong Wook Lee

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)
+82.2.3290.2820 (Phone)
+82.2.3290.1307 (Fax)

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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