The S&P 500 Index Effect in Continuous Time: Evidence from Overnight, Intraday and Tick-By-Tick Stock Price Performance

33 Pages Posted: 11 Jun 2007

See all articles by Konstantina Kappou

Konstantina Kappou

University of Reading - ICMA Centre

Chris Brooks

University of Reading - ICMA Centre

Charles W.R. Ward

University of Reading

Date Written: May 2007

Abstract

The advent of index tracking early in the 1970s and the continuous growth of assets tied to the S&P 500 index have enforced perceptions of the importance of becoming an index-member, due to increased demand by index fund participants for the stocks involved in index composition changes. This study focuses on S&P 500 inclusions and examines the impact of potential overnight price adjustment after the announcement of an S&P 500 index change. We find evidence of a significant overnight price change that diminishes the profits available to speculators although there are still profits available from the first day after announcement until a few days after the actual event. More importantly observing the tick-by-tick stock price performance of the key days of the event window for the first time, we find evidence of consistent trading patterns during trading hours over inclusion event. A separate analysis of two different sub-periods as well as of NASDAQ and NYSE listed stocks allows for a detailed examination of the price and volume effect in continuous time.

Keywords: Index effect, S&P 500, market efficiency, price pressure

JEL Classification: G10, G14

Suggested Citation

Kappou, Konstantina and Brooks, Chris and Ward, Charles W.R., The S&P 500 Index Effect in Continuous Time: Evidence from Overnight, Intraday and Tick-By-Tick Stock Price Performance (May 2007). Available at SSRN: https://ssrn.com/abstract=991858 or http://dx.doi.org/10.2139/ssrn.991858

Konstantina Kappou

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 7793405682 (Phone)
+44 1189314741 (Fax)

Chris Brooks (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Charles W.R. Ward

University of Reading ( email )

ICMA Centre,
Henley Business School
Reading, RG6 6AB
United Kingdom
T: +44 (0)118 378 8239 (Phone)

HOME PAGE: http://www.icmacentre.ac.uk/about_us/academic_staff/professor_charles_ward,

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
645
Abstract Views
2,586
rank
46,822
PlumX Metrics