Stock Index changes (other indices) – paper review

Previously, we have reviewed the academic literature on index changes for the FTSE 100 and S&P 500 indices; here we present a brief review and listing of academic papers on other indices.

This article presents a brief review and listing of academic papers on stock index changes.


Generally, most of the papers found similar effects for companies added to or deleted from indices as has previously been reported for the S&P 500 and FTSE 100 indices. Namely, shares experience positive abnormal returns and increased trading volumes following the announcement of their addition to an index.

An exception was Beneish and Gardner (1995) who found that share prices and volumes were not affected for new DJIA companies (probably due to a lack of index funds associated with the DJIA) although shares saw big falls when deleted from the index.

Shankar and Miller (2006) found that shares experienced greater increases (declines) when companies were introduced (deleted) from the series of S&P indices, than those companies that just moved between S&P indices.

One of the greatest points of difference is whether the index change effects on shares are permanent or temporary. The papers finding the effects permanent were: Hacbedel (2007) with respect to the MSCIEM, and Liu (2011) for the Nikkei 225. While those finding the effects temporary were: Shankar and Miller (2006) for the S&P SmallCap 600 Index,  Chakrabarti, Huang, Jayaraman and Lee (2005) for the MSCI indices, and Biktimirov, Cowan and Jordan (2004) for the Russell 2000.


INDEX (of papers listed below)

[Papers listed in reverse date order; indicates major paper.]

  1. What Happens When a Stock is Added to the Nasdaq-100 Index? What Doesn’t Happen? [2014]
  2. Market reactions to changes in the Nasdaq 100 Index [2013]
  3. Regression Discontinuity and the Price Effects of Stock Market Indexing [2013]
  4. The price effects of index additions: A new explanation [2011]
  5. Does Inclusion in a Smaller S&P Index Create Value? [2010]
  6. Why Do Index Changes Have Price Effects? [2007]
  7. Market Reaction to Changes in the S&P SmallCap 600 Index [2006]
  8. Price and volume effects of changes in MSCI indices – nature and causes [2005]
  9. Do Demand Curves for Small Stocks Slope Down? [2004]
  10. Information Costs and Liquidity Effects from Changes in the Dow Jones Industrial Average List [1995]



What Happens When a Stock is Added to the Nasdaq-100 Index? What Doesn’t Happen?
Authors [Year]: Susana Yu, Gwendolyn P. Webb, Kishore Tandon [2014]
Journal [Citations]:
Abstract: Additions to the Nasdaq-100 Index are based primarily on market capitalization rather than on judgments about a firm’s stature in its industry. We analyze abnormal returns upon announcement that a stock will be added to the Nasdaq-100 Index in a multivariate analysis that incorporates several possible alternative factors. We find that only liquidity variables are significant, but that factors representing feedback effects on the firm’s operations and level of managerial effort are not. This evidence suggests that additions to the Nasdaq-100 Index are associated with liquidity benefits but not with certification effects of the type associated with additions to the S&P indexes.
Ref: BA006


Market reactions to changes in the Nasdaq 100 Index
Authors [Year]: Ernest N. Biktimirov and Yuanbin Xu [2013]
Journal [Citations]:
Abstract: We examine stock market reactions to changes in the Nasdaq 100 index. We find asymmetric price response accompanied by a significant increase in trading volume on the effective date. Firms added to the Nasdaq 100 Index experience significant increases ininstitutional ownership, the number of market makers, and the number of shareholders. In contrast, firms removed from the index show significant decreases in the number of institutional shareholders. Additions to the Nasdaq 100 Index also show significant increases in four liquidity measures, whereas deletions demonstrate significant decreases in two liquidity measures. These changes in liquidity are related to the abnormal return on the announcement day. Taken together, the results provide support for the liquidity hypothesis.
Ref: AA723

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