A change of focus: Stock market reclassification in the UK

Bryan Mase

The European Journal of Finance, 2008, vol. 14, issue 3, 179-193

Abstract: This paper examines the impact of a change of focus by a firm, as signified by a firm's stock market reclassification. It distinguishes between a firm's sector reclassification motivated by information specific to that firm and one that results from the redefinition and reorganisation of a sector. The direction of the price effects following reclassification depends significantly upon this distinction. Furthermore, a stock's return comovement with the FTSE All-Share Index is affected by its reclassification into a new sector, consistent with the allocation of stocks into categories by investors. Reclassification can induce common factors in the returns to stocks in an index without there being any change in these stocks' fundamental cash flows.

Keywords: return comovement; restructuring; sector reclassification (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1080/13518470801892285

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