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The index effect: an investigation of the price, volume and trading effects surrounding changes to the S & P Australian indices

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posted on 2007-01-01, 00:00 authored by D Pullen, Gerard Gannon
This paper examines the stock price and volume effects surrounding the announcement of constituent changes to the S&P/ASX 200 and four supplementary indices. Between April 2000 and December 2002 additions to (deletions from) the ASX 200 were associated with a significant price rise (fall) over the 10 day period following the market announcement of the change. Additions (deletions) also displayed a significant rise (fall) on the announcement date itself. These findings were corroborated by significant increases in trading volume over the same intervals, suggesting heavy trading activity by index funds in response to changes to the ASX 200. Following the implementation of these changes, both additions and deletions experienced a significant price reversion, supporting the price pressure hypothesis. In contrast, none of the supplementary indices displayed evidence of stock price or volume effects, thereby precluding the information and liquidity hypotheses as viable explanations for the findings of this research.

History

Series

School Working Paper - Accounting/Finance Series : SWP 2007/07

Pagination

1 - 44

Publisher

Deakin University, School of Accounting, Economics and Finance

Place of publication

Geelong, Vic.

Language

eng

Publication classification

CN.1 Other journal article

Copyright notice

2007, The Authors

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