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Leverage-based index revisions: The case of Dow Jones Islamic Market World Index

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  • Chen, Haiwei
  • Ngo, Thanh

Abstract

US firms added to the Dow Jones Islamic Market World Index, a leverage-based index, witness permanent positive price and liquidity effects, whereas excluded firms sustain negative price and liquidity effects but no decrease in the investor awareness. Included/excluded firms experience a significant drop/no change in the cost of equity. Among the deleted firms, those with an increase in debt level bear a more severe decrease in liquidity and institutional ownership, and an increased cost of equity than those firms without an increase in debt use. Conveying private information on changes in a firm's corporate strategy and operating environment, revisions by a leverage-based index are different from those by size-based indexes.

Suggested Citation

  • Chen, Haiwei & Ngo, Thanh, 2017. "Leverage-based index revisions: The case of Dow Jones Islamic Market World Index," Global Finance Journal, Elsevier, vol. 32(C), pages 16-34.
    • Handle: RePEc:eee:glofin:v:32:y:2017:i:c:p:16-34
    DOI: 10.1016/j.gfj.2016.06.007
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    More about this item

    Keywords

    Islamic index; Index revisions; Leverage; Stock liquidity; Cost of equity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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