 Comovement and S&P 500 membershipJoseph DeCoste Global Finance Journal, 2025, vol. 65, issue C Abstract: This paper tests the existence of excessive comovement among firms in the S&P 500. Using a fuzzy regression discontinuity approach I show that membership in the S&P 500 leads to significant positive excess comovement in the long term. I evaluate a traditional, liquidity based explanation and a friction based explanation, and find no evidence that liquidity is driving excess comovement in the sample. I show that the previous lack of evidence for excess comovement shown in Chen, Singal, Whitelaw (2016) is due to heterogeneous effects on firms who are newly included versus those that are established members. One potential explanation is that immediately after inclusion, investors take time to rebalance and fully integrate the new stock into the group, reducing observed increases in comovement in the short term. These results constitute new evidence of frictions when exposed to large classes of noise traders with correlated demands, such as those populating the S&P 500. Keywords: Index investing; Stock index; Comovement; Financialization; Regression discontinuity design (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:65:y:2025:i:c:s1044028325000377 DOI: 10.1016/j.gfj.2025.101110 Access Statistics for this article Global Finance Journal is currently edited by Manuchehr Shahrokhi More articles in Global Finance Journal from Elsevier |
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