Asymmetric stock price and liquidity responses to changes in the FTSE SmallCap index

Ernest Biktimirov () and Boya Li

Review of Quantitative Finance and Accounting, 2014, vol. 42, issue 1, 95-122

Abstract: We examine market reactions to changes in the FTSE SmallCap index membership, which are determined quarterly based on market capitalization and are free of information effects. Our main results are asymmetric price and liquidity responses between the firms that are shifted between FTSE indexes and the firms that are new to FTSE indexes. Firms promoted from a smaller-cap to a larger-cap FTSE index experience a permanent increase in stock price accompanied by improvements in liquidity. Similarly, firms demoted from a larger-cap to a smaller-cap FTSE index experience a permanent decrease in stock price accompanied by declines in liquidity. In contrast, firms added to the FTSE SmallCap index that were not previously in FTSE indexes show a transitory price gain and declines in liquidity. The results support the liquidity and price pressure hypotheses. Copyright Springer Science+Business Media New York 2014

Keywords: Event study; FTSE SmallCap index; Index changes; Institutional ownership; Liquidity; Stock prices; Trading volume; G12; G14 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s11156-012-0335-7

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