The Price Response to KIKKEI 225 Stocks Index Adjustments

Chia-Jung Tu

The International Journal of Business and Finance Research, 2012, vol. 6, issue 4, 59-71

Abstract: Using Nikkei 225 Index adjustment data, this study examines price response to changes in index composition. This study demonstrates that prices of stocks added to and deleted from the Nikkei 225 Index respectively fluctuate accordingly on the announcement day. These price trends then reverse during the post-announcement period. The results are consistent with the price pressure hypothesis. By classifying the composite stocks into two categories, this study finds that small-scale stocks exhibit larger price responses than large-scale stocks. In addition, the results show that newly added stocks with upward revised earnings forecasts earn more abnormal returns during the post-announcement period. The results shed more light on the information content associated index adjustments in the Japanese stock market.

Keywords: Nikkei 225 Index; price responses; earnings forecast revision (search for similar items in EconPapers)
JEL-codes: G15 G32 (search for similar items in EconPapers)
Date: 2012
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