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Additions to S&P 500 Index: not so informative any more

Rashiqa Kamal (Department of Finance and Business Law, University of Wisconsin‐Whitewater, Whitewater, Wisconsin, USA)
Edward R. Lawrence (Department of Finance, Florida International University, Miami, Florida, USA)
George McCabe (Department of Finance, University of Nebraska‐Lincoln, Lincoln, Nebraska, USA)
Arun J. Prakash (Department of Finance, Florida International University, Miami, Florida, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 9 March 2012

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Abstract

Purpose

There is empirical evidence that a firm's addition to S&P 500 results in significant abnormal returns and an increase in a stock's liquidity. The purpose of this paper is to argue that changes in the information environment after the year 2000 due to the implementation of Regulation Fair Disclosure (FD), decimalization and Sarbanes Oxley Act, should result in reduced abnormal returns in the post‐2000 period.

Design/methodology/approach

The authors compare the abnormal returns and liquidity changes around the announcement day of firm's addition to S&P 500 in the pre‐ and post‐2000 periods. Univariate and multivariate tests are used to control for factors that research shows affect the abnormal returns around additions to S&P 500.

Findings

It is found that the reduction in informational asymmetry in the post‐2000 period has resulted in a significant decrease in the abnormal return on the announcement day of additions to S&P 500 index and changes in the stock's liquidity in the post announcement period are now marginal.

Originality/value

Existing literature related to changes in the abnormal returns around additions to S&P 500 does not account for changes in the information environment in the two sub periods, pre‐ and post‐2000. The results may have implications for studies related to additions to S&P 500 where the sample period spans over the two sub periods.

Keywords

Citation

Kamal, R., Lawrence, E.R., McCabe, G. and Prakash, A.J. (2012), "Additions to S&P 500 Index: not so informative any more", Managerial Finance, Vol. 38 No. 4, pp. 380-402. https://doi.org/10.1108/03074351211207536

Publisher

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Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

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