Comovement and Ftse 100 Index Changes
33 Pages Posted: 4 Mar 2005
Date Written: February 2005
We employ the Barberis, Shleifer and Wurgler (2005) methodology to investigate the impact of changes to the FTSE 100 index on return comovement 1992-2002. For FTSE entries, the average weekly increase in the beta coefficient is 0.38 in univariate regressions 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
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