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Long-term impacts of index reconstitutions: Evidence from the CSI 300 additions and deletions

Gang Chu, John W. Goodell, Xiao Li and Yongjie Zhang

Pacific-Basin Finance Journal, 2021, vol. 69, issue C

Abstract: We investigate the long-term impacts of index reconstitutions for stocks added to or deleted from the CSI 300 Index, the central indicator of the Chinese equity market. We find that both added and deleted stocks experience abnormal returns over four-year holding periods, with deleted stocks significantly outperforming added stocks. We find nuanced support for previous US findings regarding the impact of reconstitution on firm-level factors, as well as evidencing new firm-risk and manager overconfidence hypotheses. We also highlight the role of state ownership in explaining differences in abnormal returns between added and deleted stocks. Results will be of great value for investors in the Chinese market and to scholars interested in index reconstitutions.

Keywords: CSI 300; Stock indices; Stock index reconstitutions; Index revisions (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.pacfin.2021.101651

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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Handle: RePEc:eee:pacfin:v:69:y:2021:i:c:s0927538x2100158x