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Effects of changes in stock market index composition on stock returns: event study methodology on Zagreb Stock Exchange

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  • Škrinjarić Tihana

    (Department of Mathematics, University of Zagreb Faculty of Economics and Business, Croatia)

Abstract

This paper observes the short-run effects of stock market index composition changes on stock returns on the Zagreb Stock Exchange (ZSE). In that way, event study methodology is employed in order to estimate abnormal returns and compare them amongst three subsets of stocks: those leaving the market index, those entering it, and constantly included stocks. The research included 14 regular and extraordinary revisions of the market index in the period from January 2nd, 2015 until March 21st, 2018. The results have confirmed two research hypotheses: stock exclusions from the market index have a negative effect on stock returns on the ZSE, which is consistent with the price pressure hypothesis; and there exist asymmetric effects of index composition changes on stock returns. This is the first study of this kind on the Croatian stock market, thus more questions need to be answered in future research.

Suggested Citation

  • Škrinjarić Tihana, 2019. "Effects of changes in stock market index composition on stock returns: event study methodology on Zagreb Stock Exchange," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 5(1), pages 43-54, May.
    • Handle: RePEc:vrs:crebss:v:5:y:2019:i:1:p:43-54:n:5
    DOI: 10.2478/crebss-2019-0005
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    More about this item

    Keywords

    abnormal returns; Croatian stock market; event study; index composition change;
    All these keywords.

    JEL classification:

    • 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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