New Evidence on Stock Price Effects Associated with Charges in the S&P 500 Index
|Authors:||Lynch, Anthony W.|
Mendenhall, Richard R.
|Keywords:||S&P 500 Changes;Stock Demand Curves;Market Efficiency;Volume Price Relationships|
|Abstract:||Since October 1989, Standard and Poor’s has (when possible) announced changes in the composition of the S&P 500 index one week in advance. Because index funds hold S&P 500 stocks to minimize tracking error, index composition changes since this date provide an opportunity to examine the market reaction to an anticipated change in the demand for a stock. Using post-October-1989 data, we document significantly positive (negative) post-announcement abnormal returns that are only partially reversed following additions (deletions). These results indicate the existence of temporary price pressure and downward-sloping log-run demand curves for stocks and represent a violation of market efficiency.|
|Appears in Collections:||Finance Working Papers|
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