Asymmetric price responses to stock addition to and deletion from the Athens Stock Exchange Index
Abstract
Purpose
The purpose of this paper is to investigate the response of investors to the announcements on the inclusion and exclusion of companies from the FTSE-ASE 20 index.
Design/methodology/approach
Data on the inclusion and exclusion of companies from the FTSE-ASE 20 index in the period 2000-2012 were used. The authors performed an event study analysis using a constant return model and a market model. Two different measures of aggregated abnormal returns, namely the cumulating abnormal returns and the buy-and-hold abnormal return, were used in this investigation.
Findings
The results suggest that the exclusion of a company from the index has a significant negative effect on stock returns. Specifically, such a stock takes more than 15 days to recover. However, for a company’s inclusion in the index, the authors observe short-lived positive reactions on stock returns.
Practical implications
Capital market regulators and investors should find the policy implications of this paper meaningful. Investment strategies can be implemented on the basis of the news of exclusion from the index, which can lead to higher performance for investors. As far as authorities are concerned, the decision of inclusion and exclusion to the most significant stock index in the Greek market should be carefully considered because it creates financial instability for a significant time period.
Originality/value
By using a battery of parametric and non-parametric econometric tests, the existence of abnormal returns of the FTSE-ASE 20 index is explored over a long time period, including the recent financial crisis.
Keywords
Citation
Papachristou, G., Papadamou, S. and Spyromitros, E. (2018), "Asymmetric price responses to stock addition to and deletion from the Athens Stock Exchange Index", Managerial Finance, Vol. 44 No. 4, pp. 406-423. https://doi.org/10.1108/MF-12-2016-0350
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited