A comprehensive long-term analysis of S&P 500 index additions and deletions

Kalok Chan; Hung Wan KOT; Gordon Y N TANG

doi:10.1016/j.jbankfin.2013.08.027

A comprehensive long-term analysis of S&P 500 index additions and deletions

Kalok Chan, Hung Wan KOT^*, Gordon Y N TANG

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

39 Citations (Scopus)

Abstract

We investigate the long-term effects of S&P 500 index additions and deletions on a sample of stocks from 1962 to 2003 and find a significant long-term price increase for both added and deleted stocks, with deleted stocks outperforming added stocks. The long-term price increase for added stocks can be attributed to increases in institutional ownership, liquidity, and analyst coverage, and a decrease in the shadow cost in the long-term. However, while deletion has no significant effect on analyst coverage and shadow cost, we find a rebound in the institutional ownership and liquidity of deleted stocks. The difference in the long-term price increase of added and deleted stocks can be explained by analyst coverage and operating performance.

Original language	English
Pages (from-to)	4920-4930
Number of pages	11
Journal	Journal of Banking and Finance
Volume	37
Issue number	12
DOIs	https://doi.org/10.1016/j.jbankfin.2013.08.027
Publication status	Published - Dec 2013

User-Defined Keywords

Information quality
Liquidity
Long-run performance
Operating performance
S&P 500 index revision

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10.1016/j.jbankfin.2013.08.027

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title = "A comprehensive long-term analysis of S&P 500 index additions and deletions",

abstract = "We investigate the long-term effects of S&P 500 index additions and deletions on a sample of stocks from 1962 to 2003 and find a significant long-term price increase for both added and deleted stocks, with deleted stocks outperforming added stocks. The long-term price increase for added stocks can be attributed to increases in institutional ownership, liquidity, and analyst coverage, and a decrease in the shadow cost in the long-term. However, while deletion has no significant effect on analyst coverage and shadow cost, we find a rebound in the institutional ownership and liquidity of deleted stocks. The difference in the long-term price increase of added and deleted stocks can be explained by analyst coverage and operating performance.",

keywords = "Information quality, Liquidity, Long-run performance, Operating performance, S&P 500 index revision",

author = "Kalok Chan and KOT, {Hung Wan} and TANG, {Gordon Y N}",

note = "Funding Information: We thank an anonymous referee, Honghui Chen, Li Ge, and participants of a seminar at the Shanghai University of Finance and Economics and the AsianFA International Conference at Taipei for their helpful comments, and Harry Leung for his excellent research assistance. An earlier version of this paper was circulated under the title “Stocks added to or deleted from the S&P 500 index: A comprehensive long-term analysis.” We acknowledge a faculty research grant from the Hong Kong Baptist University. Any errors are our own.",

year = "2013",

month = dec,

doi = "10.1016/j.jbankfin.2013.08.027",

language = "English",

volume = "37",

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journal = "Journal of Banking and Finance",

issn = "0378-4266",

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AU - Chan, Kalok

AU - KOT, Hung Wan

AU - TANG, Gordon Y N

N1 - Funding Information: We thank an anonymous referee, Honghui Chen, Li Ge, and participants of a seminar at the Shanghai University of Finance and Economics and the AsianFA International Conference at Taipei for their helpful comments, and Harry Leung for his excellent research assistance. An earlier version of this paper was circulated under the title “Stocks added to or deleted from the S&P 500 index: A comprehensive long-term analysis.” We acknowledge a faculty research grant from the Hong Kong Baptist University. Any errors are our own.

PY - 2013/12

Y1 - 2013/12

N2 - We investigate the long-term effects of S&P 500 index additions and deletions on a sample of stocks from 1962 to 2003 and find a significant long-term price increase for both added and deleted stocks, with deleted stocks outperforming added stocks. The long-term price increase for added stocks can be attributed to increases in institutional ownership, liquidity, and analyst coverage, and a decrease in the shadow cost in the long-term. However, while deletion has no significant effect on analyst coverage and shadow cost, we find a rebound in the institutional ownership and liquidity of deleted stocks. The difference in the long-term price increase of added and deleted stocks can be explained by analyst coverage and operating performance.

AB - We investigate the long-term effects of S&P 500 index additions and deletions on a sample of stocks from 1962 to 2003 and find a significant long-term price increase for both added and deleted stocks, with deleted stocks outperforming added stocks. The long-term price increase for added stocks can be attributed to increases in institutional ownership, liquidity, and analyst coverage, and a decrease in the shadow cost in the long-term. However, while deletion has no significant effect on analyst coverage and shadow cost, we find a rebound in the institutional ownership and liquidity of deleted stocks. The difference in the long-term price increase of added and deleted stocks can be explained by analyst coverage and operating performance.

KW - Information quality

KW - Liquidity

KW - Long-run performance

KW - Operating performance

KW - S&P 500 index revision

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DO - 10.1016/j.jbankfin.2013.08.027

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AN - SCOPUS:84884785979

SN - 0378-4266

VL - 37

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JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

IS - 12

ER -

A comprehensive long-term analysis of S&P 500 index additions and deletions

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