The long-term performance of index additions and deletions: Evidence from the Hang Seng Index

Hung Wan KOT*, Harry K.M. Leung, Gordon Y N TANG

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    9 Citations (Scopus)

    Abstract

    We investigate the long-term performance of firms added to or deleted from the Hang Seng Index from 1986 to 2008. The stocks newly deleted from the Hang Seng Index have abnormal returns over a 5-year holding period and the newly added stocks do not. The deleted stocks outperform the added stocks,with the difference resulting from poorly performing state-owned added stocks and better performing family-owned deleted stocks. The operating performance of the deleted stocks improves in the post-event period and that of the added stocks does not. The liquidity and beta of the added stocks decrease and the analyst coverage increases. Meanwhile, the liquidity and analyst coverage of the deleted stocks decrease. Regression analyses show that changes in operating performance are the most important factors explaining the long-term stock performance of added and deleted stocks.

    Original languageEnglish
    Pages (from-to)407-420
    Number of pages14
    JournalInternational Review of Financial Analysis
    Volume42
    DOIs
    Publication statusPublished - 1 Dec 2015

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics

    User-Defined Keywords

    • Analyst coverage
    • G10
    • G14
    • Hang Seng Index
    • Index revisions
    • Long-term performance
    • Operating performance

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