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What Drives the S&P 500 Inclusion Effect? An Analytical Survey
Author(s) -
Elliott William B.,
Ness Bonnie F.,
Walker Mark D.,
Warr Richard S.
Publication year - 2006
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2006.tb00158.x
Subject(s) - market liquidity , economics , stock (firearms) , inclusion (mineral) , monetary economics , value (mathematics) , econometrics , financial economics , index (typography) , statistics , mathematics , chemistry , mineralogy , mechanical engineering , world wide web , computer science , engineering
We present an analytical survey of the explanations—price pressure, downward‐sloping demand curves, improved liquidity, improved operating performance, and increased investor awareness—for the increase in stock value associated with inclusion in the S&P 500 Index. We find that increased investor awareness is the primary factor behind the cross‐section of abnormal announcement returns. We also find some evidence of temporary price pressure around the inclusion date. We find no evidence that long‐run downward‐sloping demand curves for stocks, anticipated improvements in operating performance, or increased liquidity are related to the cross‐section of announcement or inclusion returns.