THE PRICE IMPACT OF S&P 500 AFFILIATION

Daria  GAVRILOVA

doi:10.2478/subboec-2023-0003

Authors

Daria GAVRILOVA Faculty of Economics and Business Administration, Babeş-Bolyai University, Cluj-Napoca, Romania. Email: daria.gavrilova@econ.ubbcluj.ro. https://orcid.org/0000-0002-0097-4679

DOI:

https://doi.org/10.2478/subboec-2023-0003

Keywords:

Index addition, index restructuring, stock addition, liquidity, abnormal returns

Abstract

We examine how abnormal returns and abnormal return determinants change when a company is added to S&P 500. Newly added companies experience a significant increase in abnormal returns around the announcement and addition dates. This increase is accompanied by an improvement in liquidity and a decrease in associated shadow cost. While before their addition, firm-specific abnormal returns can be explained by price impact, they are explained by changes in trading activity during the addition event. Additionally, companies with higher leverage ratios benefit more from index affiliation.

JEL Classification: G10, G12, G14,

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