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A comprehensive long-term analysis of S&P 500 index additions and deletions

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  • Chan, Kalok
  • Kot, Hung Wan
  • Tang, Gordon Y.N.

Abstract

We investigate the long-term effects of S&P 500 index additions and deletions on a sample of stocks from 1962 to 2003 and find a significant long-term price increase for both added and deleted stocks, with deleted stocks outperforming added stocks. The long-term price increase for added stocks can be attributed to increases in institutional ownership, liquidity, and analyst coverage, and a decrease in the shadow cost in the long-term. However, while deletion has no significant effect on analyst coverage and shadow cost, we find a rebound in the institutional ownership and liquidity of deleted stocks. The difference in the long-term price increase of added and deleted stocks can be explained by analyst coverage and operating performance.

Suggested Citation

  • Chan, Kalok & Kot, Hung Wan & Tang, Gordon Y.N., 2013. "A comprehensive long-term analysis of S&P 500 index additions and deletions," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4920-4930.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:4920-4930
    DOI: 10.1016/j.jbankfin.2013.08.027
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    More about this item

    Keywords

    S&P 500 index revision; Long-run performance; Operating performance; Information quality; Liquidity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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