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Understanding short‐term price pressure from index reconstitutions: Evidence from the CSI 300

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  • Gang Chu
  • John W. Goodell
  • Xiao Li
  • Yongjie Zhang

Abstract

Motivated by the mixed results of the few prior studies, we focus on the short‐term price performance of stocks added to or deleted from the CSI 300 Index. Consistent with the price pressure hypothesis, we evidence a temporary change in the prices of respective added and deleted stocks, followed by subsequent price reversions. To reconcile past studies, we also test several explanatory factors as potential sources of short‐term price pressure. Results show that changes in investor trading behaviour, investor awareness, firm risk, and liquidity explain the short‐term price pressure of added and deleted stocks, while changes in institutional trading, realised volatility, and liquidity explain the differences in the impact of reconstitutions between added and deleted stocks.

Suggested Citation

  • Gang Chu & John W. Goodell & Xiao Li & Yongjie Zhang, 2023. "Understanding short‐term price pressure from index reconstitutions: Evidence from the CSI 300," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2421-2440, June.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:2:p:2421-2440
    DOI: 10.1111/acfi.12977
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    References listed on IDEAS

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