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Is there an S&P 500 index effect?

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Abstract

We find that the firms included in the S&P 500 index are characterized by large increases in earnings, appreciation in market value, and positive price momentum in the period preceding their index inclusion. This strong preinclusion performance predicts 1) the permanent increase of market value and 2) the change in return comovement, reflected in declines of size, value, and momentum betas, following index inclusion. Nonevent firms with similar performance experience similar appreciation in value and changes in comovement coincident with the event firms. Contrary to the consensus in the literature, our results indicate that?after accounting for the firms? extraordinary preinclusion performance?index inclusion has no permanent effect on value and comovement.

Suggested Citation

  • Maria Kasch & Asani Sarkar, 2011. "Is there an S&P 500 index effect?," Staff Reports 484, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:484
    Note: Previous title: Comovement Revisited
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    References listed on IDEAS

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    1. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
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    More about this item

    Keywords

    Index numbers (Economics); Stock market; Risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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