The price effects of index additions: A new explanation

Shinhua Liu

Journal of Economics and Business, 2011, vol. 63, issue 2, 152-165

Abstract: We further explore a new volatility explanation for the permanent price effect of index additions, using a sample of changes in the Nikkei 225. Additions to the index elicit significant price hikes, which tend to be permanent despite temporary price reversals. Meanwhile, investor awareness and demand increase, while price volatility decreases for the added stocks, contrary to the higher price volatility for stocks added to the S&P 500. Moreover, multivariate regression analysis demonstrates that the lower volatility contributes significantly to the permanent price boost, a new explanation; so does the higher investor awareness, consistent with the prior literature.

Keywords: Nikkei 225; Additions; Price effects; Explanations; Price volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G32 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:63:y:2011:i:2:p:152-165

DOI: 10.1016/j.jeconbus.2010.09.001

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