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The Disappearing Index Effect

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  • ROBIN GREENWOOD
  • MARCO SAMMON

Abstract

The abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 7.4% in the 1990s to less than 1% over the past decade. This has occurred despite a significant increase in the share of stock market assets linked to the index. A similar pattern has occurred for index deletions, with large negative abnormal returns during the 1990s but an average return of only 0.1% between 2010 and 2020. We investigate the drivers of this phenomenon and discuss implications for market efficiency. We document a similar decline in the index effect among other families of indices.

Suggested Citation

  • Robin Greenwood & Marco Sammon, 2025. "The Disappearing Index Effect," Journal of Finance, American Finance Association, vol. 80(2), pages 657-698, April.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:2:p:657-698
    DOI: 10.1111/jofi.13410
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