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Stock Price and Volume Effects Associated with Compositional Changes in European Stock Indices

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  • Cristina Vespro

Abstract

This paper provides further evidence of price and volume effects associated with index compositional changes by analysing the inclusions (exclusions) from the French CAC40 and SBF120 indices, as well as the FTSE100. I find evidence supporting the price pressure hypothesis associated with index fund rebalancing, but weak or no evidence for the imperfect substitution, liquidity and information hypotheses. The results improve on recent evidence from the S&P500 index. The evidence for the FTSE100 additions shows, in particular, that markets learn about an imminent inclusion and incorporate this information into prices, even before the announcement date.

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  • Cristina Vespro, 2006. "Stock Price and Volume Effects Associated with Compositional Changes in European Stock Indices," European Financial Management, European Financial Management Association, vol. 12(1), pages 103-127, January.
    • Handle: RePEc:bla:eufman:v:12:y:2006:i:1:p:103-127
    DOI: 10.1111/j.1354-7798.2006.00312.x
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    References listed on IDEAS

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    1. Jeffrey Wurgler & Ekaterina Zhuravskaya, 2002. "Does Arbitrage Flatten Demand Curves for Stocks?," The Journal of Business, University of Chicago Press, vol. 75(4), pages 583-608, October.
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    1. Škrinjarić Tihana, 2019. "Effects of changes in stock market index composition on stock returns: event study methodology on Zagreb Stock Exchange," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 5(1), pages 43-54, May.
    2. Daya, Wael & Mazouz, Khelifa & Freeman, Mark, 2012. "Information efficiency changes following FTSE 100 index revisions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 1054-1069.
    3. Ernest Biktimirov & Boya Li, 2014. "Asymmetric stock price and liquidity responses to changes in the FTSE SmallCap index," Review of Quantitative Finance and Accounting, Springer, vol. 42(1), pages 95-122, January.
    4. Afego, Pyemo N., 2017. "Effects of changes in stock index compositions: A literature survey," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 228-239.
    5. Daria Gavrilova, 2023. "Effects Of Index Additions On Stock Price Informativeness," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 31, pages 39-64, June.
    6. Neveen Ahmed & Aliaa Bassiouny, 2018. "The Effects of Index Changes on Stock Trading: Evidence from the EGX," Review of Economics & Finance, Better Advances Press, Canada, vol. 11, pages 55-66, February.
    7. Azevedo, Alcino & Karim, Mohamad & Gregoriou, Andros & Rhodes, Mark, 2014. "Stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysian KLCI," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 20-35.
    8. Mazouz, Khelifa & Saadouni, Bharim, 2007. "New evidence on the price and liquidity effects of the FTSE 100 index revisions," International Review of Financial Analysis, Elsevier, vol. 16(3), pages 223-241.
    9. Prabhdeep Kaur & Jaspal Singh, 2021. "Impact of ETF Listing on the Returns Generated by Underlying Stocks: Indian Evidence," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 46(3), pages 263-288, August.
    10. Mazouz, Khelifa & Daya, Wael & Yin, Shuxing, 2014. "Index revisions, systematic liquidity risk and the cost of equity capital," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 283-298.
    11. 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.
    12. Joon Woo Park & Chang Won Lee, 2018. "Performance of stock price with changes in SRI governance index," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(6), pages 1121-1129, November.
    13. João Pedro Pereira & Teresa Cutelo, 2013. "Tiny Prices in a Tiny Market: Evidence from Portugal on Optimal Share Prices," European Financial Management, European Financial Management Association, vol. 19(3), pages 579-598, June.

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