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Additions to and Deletions from an Open-Ended Market Index: Evidence from the Australian All Ordinaries

Author

Listed:
  • Howard W.H. Chan

    (Department of Accounting and Finance, Monash University, Clayton VIC 3168. Email: peter.howard@buseco.monash.edu.au)

  • Peter F. Howard

    (Department of Accounting and Finance, Monash University, Clayton VIC 3168)

Abstract

The shares of companies added to (deleted from) closed-end indices such as the S&P 500 experience significant positive (negative) abnormal returns. We examine companies added to or deleted from an open-ended market index where changes occur regularly and can be predicted in advance. Our results are broadly consistent with those for closed-end indices and are robust to benchmarks used to control for market, size and industry effects. Analysis of daily returns and volume shows significant effects around the change date. By construction, companies entering the index outperform index benchmarks prior to inclusion. After controlling for selection bias, additions outperformed over the 4 months prior to inclusion.

Suggested Citation

  • Howard W.H. Chan & Peter F. Howard, 2002. "Additions to and Deletions from an Open-Ended Market Index: Evidence from the Australian All Ordinaries," Australian Journal of Management, Australian School of Business, vol. 27(1), pages 45-74, June.
    • Handle: RePEc:sae:ausman:v:27:y:2002:i:1:p:45-74
    DOI: 10.1177/031289620202700103
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    References listed on IDEAS

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    Cited by:

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    2. Safi Ullah Khan & Zaheer Abbas, 2013. "Does Equity Derivatives Trading Affect the Systematic Risk of the Underlying Stocks in an Emerging Market: Evidence from Pakistan’s Futures Market," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(1), pages 63-80, Jan-June.
    3. Bildik, Recep & Gulay, Guzhan, 2008. "The effects of changes in index composition on stock prices and volume: Evidence from the Istanbul stock exchange," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 178-197.
    4. Sascha Wilkens & Jens Wimschulte, 2005. "Price and Volume Effects Associated with 2003’s Major Reorganization of German Stock Indices," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 19(1), pages 61-98, June.
    5. Ruoyun (Lucy) Zhao & C Schmidt & C Terry, 2016. "Index effects: Evidence from Australia," Published Paper Series 2016-2, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    6. Ken L. Bechmann, 2004. "Price and Volume Effects Associated with Changes in the Danish Blue-Chip Index: The KFX Index," Multinational Finance Journal, Multinational Finance Journal, vol. 8(1-2), pages 3-34, March-Jun.

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