S&P 500 inclusions and stock supply

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

I provide new evidence of the S&P500 inclusion effect that highlights the importance of stock supply. If excess demand from S&P500-linked capital drives the inclusion effect, it should depend as well on the effective supply of a stock. Standard & Poor's index methodology gives two distinct features of a stock's ownership composition a supply interpretation. Both measures significantly predict the cross-sectional size of inclusion returns. Switching to free-floating index weights in 2005 enables a quasi-natural experiment to one proxy and a placebo test to the other. Finally, evidence from the most recent decade indicates that any persistence in the inclusion effect has disappeared.

LanguageEnglish
Pages341-356
Number of pages16
JournalJournal of Empirical Finance
Volume48
DOIs
Publication statusPublished - Sep 2018

Fingerprint

Inclusion
Ownership
Excess demand
Methodology
Floating
Persistence
Natural experiment

Keywords

  • Arbitrage capital
  • Control ownership
  • Downward-sloping demand for stocks
  • Free-float index weight adjustment
  • Price pressure
  • S&P 500 additions

Cite this

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abstract = "I provide new evidence of the S&P500 inclusion effect that highlights the importance of stock supply. If excess demand from S&P500-linked capital drives the inclusion effect, it should depend as well on the effective supply of a stock. Standard & Poor's index methodology gives two distinct features of a stock's ownership composition a supply interpretation. Both measures significantly predict the cross-sectional size of inclusion returns. Switching to free-floating index weights in 2005 enables a quasi-natural experiment to one proxy and a placebo test to the other. Finally, evidence from the most recent decade indicates that any persistence in the inclusion effect has disappeared.",
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S&P 500 inclusions and stock supply. / Schnitzler, Jan.

In: Journal of Empirical Finance, Vol. 48, 09.2018, p. 341-356.

Research output: Contribution to JournalArticleAcademicpeer-review

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