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Long-term impacts of index reconstitutions: Evidence from the CSI 300 additions and deletions

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

Abstract

We investigate the long-term impacts of index reconstitutions for stocks added to or deleted from the CSI 300 Index, the central indicator of the Chinese equity market. We find that both added and deleted stocks experience abnormal returns over four-year holding periods, with deleted stocks significantly outperforming added stocks. We find nuanced support for previous US findings regarding the impact of reconstitution on firm-level factors, as well as evidencing new firm-risk and manager overconfidence hypotheses. We also highlight the role of state ownership in explaining differences in abnormal returns between added and deleted stocks. Results will be of great value for investors in the Chinese market and to scholars interested in index reconstitutions.

Suggested Citation

  • Chu, Gang & Goodell, John W. & Li, Xiao & Zhang, Yongjie, 2021. "Long-term impacts of index reconstitutions: Evidence from the CSI 300 additions and deletions," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:pacfin:v:69:y:2021:i:c:s0927538x2100158x
    DOI: 10.1016/j.pacfin.2021.101651
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    3. Zhang, Zuochao & Goodell, John W. & Shen, Dehua & Lahmar, Oumaima, 2024. "Media opinion divergence and stock returns: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 93(C).

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