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Anticipatory Effects in the FTSE 100 Index Revisions

Author

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  • Marcelo Fernandes

    (Queen Mary University of London and Sao Paulo School of Economics, FGV)

  • João Mergulhão

    (Sao Paulo School of Economics, FGV)

Abstract

This paper examines the price impact of trading due to expected changes in the FTSE 100 index composition, which employs publicly-known objective criteria to determine membership. Hence, it provides a natural context to investigate anticipatory trading effects. We propose a panel-regression event study that backs out these anticipatory effects by looking at the price impact of the ex-ante probability of changing index membership status. Our findings reveal that anticipative trading explains about 40% and 23% of the cumulative abnormal returns of additions and deletions, respectively. The results are both statistically and economically significant.

Suggested Citation

  • Marcelo Fernandes & João Mergulhão, 2015. "Anticipatory Effects in the FTSE 100 Index Revisions," Working Papers 773, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:773
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    References listed on IDEAS

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    More about this item

    Keywords

    Imperfect substitutes; Index revision; Liquidity; Price pressure;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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