Premium
Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures
Author(s) -
HARRIS LAWRENCE,
GUREL EITAN
Publication year - 1986
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1986.tb04550.x
Subject(s) - monetary economics , volume (thermodynamics) , economics , price formation , volume weighted average price , financial economics , business , cost price , stock price , paleontology , physics , quantum mechanics , series (stratigraphy) , biology
Attempts to identify price pressures caused by large transactions may be inconclusive if the transactions convey new information to the market. This problem is addressed in an examination of prices and volume surrounding changes in the composition of the S&P 500. Since these changes cause some investors to adjust their holdings of the affected securities and since it is unlikely that the changes convey information about the future prospects of these securities, they provide an excellent opportunity to study price pressures. The results are consistent with the price‐pressure hypothesis: immediately after an addition is announced, prices increase by more than 3 percent. This increase is nearly fully reversed after 2 weeks.