تاثیر شاخص S & P500 تجدیدنظر شده : شواهدی از عملکرد قیمت و حجم شبانه روزی سهام

This study focuses on S&P500 inclusions and deletions, examining the impact of potential overnight price adjustment after the announcement of an S&P500 index change. We find evidence of a significant overnight price change that diminishes the returns available to speculators although there are still profits available from the first day after announcement until a few days after the actual event. More importantly, observing the tick-by-tick stock price performance and volume effects on the key days during the event window for the first time, we find evidence of consistent trading patterns during trading hours. A separate analysis of NASDAQ and NYSE listed stocks allows for a detailed examination of the price and volume effect at an intra-day level. We find that index funds appear to cluster their rebalancing activities near to and after the close on the event date, suggesting that they are more concerned with tracking error than profit.

Over the last 20 years, index funds have become extremely popular, with total worldwide explicitly indexed assets estimated to exceed $1 trillion. When “trackers” follow a benchmark index, their investment decisions are not based on fundamental analysis. Instead, they make the necessary portfolio adjustments only to reduce tracking error, which ensures that such funds will prefer index member stocks to non-members. Thus the deletion of an existing member-firm from a widely followed benchmark has a significant implication for fund managers. For pure index trackers, the only reason, apart from changing cash flows, for trading stocks will be index composition reviews. The “index effect” refers to the price pressure that is observed when a stock is added to or deleted from an index. If the index is widely tracked, then profits can be made by buying (selling) the shares of the added (deleted) firm ahead of index funds and selling (buying) them at a later stage, when index fund demand (supply) is satisfied. The more money is tied to the index, the more index portfolio managers will be involved in trading the underlying stocks around index recomposition. Index trackers ensure that demand will increase for added stocks and will reduce for deleted stocks. For many years, “buying additions and selling deletions” has been a lucrative strategy for investors not involved in index tracking.1 This study examines the impact of potential overnight price adjustment after the announcement of an S&P500 index addition as well as the impact on the prices and volumes of the stocks on a tick-by-tick basis. A separate analysis is conducted for additions and deletions and also for NASDAQ listed versus NYSE listed stocks. Previous studies have mainly concentrated on close-to-close abnormal returns and showed that there is a significant price increase between the close on the announcement day and the close on the day after. However, the purchase of the added stock cannot be made at the close of trading on the announcement day because the information is released to the market after the close. The first trading opportunity arises in the morning of the first day after announcement, when the stock usually opens at a considerable price increase, resulting in lower actual trading profits; our study investigates this issue in detail. The following analysis differs from previous studies in four important areas. First, the results involve not only close-to-close abnormal returns but also overnight and open-to-close returns. Second, the tick-by-tick stock price performances and trading volumes of the added stocks are examined for the first time for the years 1999 and 2000. This analysis enables us to provide a more detailed picture of the objectives and actions of index fund managers and arbitrageurs. Third, NYSE and NASDAQ samples are examined separately to determine the impact of trading venue on the index effect.2 Finally, we make use of a more recent and longer run of data on index additions than was available in previous studies. The remainder of this study is organized as follows. Section two provides a brief description of the major stock selection criteria and the announcement policies of the Standard and Poor’s Index Committee. Section three presents a brief summary of previous relevant studies associated with S&P500 index changes and the prevailing hypotheses that lie behind the companies’ post-event performance. Section four examines the stock performance after addition by using overnight and open-to close data and section five provides results using tick-by-tick abnormal returns. Section six presents an analysis of the index effect at the intra-day level and section seven examines the intra-day index effect of a deletions sample. Section eight concludes.

The first part of this study disaggregates close-to-close abnormal returns into overnight and open-to-close abnormal returns, showing that the close-to-close positive effect observed one day after the announcement of addition cannot be traded. However, profitable trading opportunities occur between the first day after announcement and the date of the actual event. The overnight price change seems to have increased over time, indicating an improvement in the level of market efficiency and a decrease in the profits available to arbitrageurs. In addition, the event date abnormal return caused mainly by index fund rebalancing has diminished over time, because most of the positive effect of being added to the S&P500 index is reflected in the stock price in advance of the actual event. The second part of this study examines the tick-by-tick performance of the firms that were added to the S&P500 index over the years 1999–2000. To summarize the main findings of this analysis, the intraday stock price movements on AD appear to be random because information about the future index change has not been released to the market at that time. However, a relatively high volume is observed over the last 5 min of this trading day, indicating a potential leakage of information before the S&P press release. During the trading hours of the first day after announcement (AD+1), the stock experiences a price drop without reversing at all, a behavior perhaps best explained by an overshoot in the overnight price increase that occurred between AD close and AD+1 open. It is also worth noting the huge trading volume that occurs over the last 10 min on the event date, which constitutes the last possible opportunity for index fund managers to rebalance their portfolios before the change becomes effective. This abnormal volume level provides evidence that most index funds seek to rebalance their portfolios as close to 16:00 as possible, and that they are concerned with tracking error. This finding is in contrast to the parting conjecture of Beneish and Whaley (1997), who suggest that index funds are rebalancing increasingly early after the announcement as they become more mindful of the price impacts of arbitrageurs. However, this increase in volume is not accompanied by a price increase, perhaps showing that other market participants, especially arbitrageurs, are unwinding their long positions in the added stock. Therefore, there is enough supply to satisfy index fund demand. After the event date, there is no further price pressure and the stock price drops significantly on both an open-to-close and an overnight basis. This study also examines a sample of pure deletions using intra-day data, with the key findings mirroring those of the additions. While there is a fall in the price of to-be-deleted stocks following the announcement, most of this occurs overnight between AD and AD+1 and hence is not tradable. There is a further large price fall on the effective day, with most of the day’s trading volume happening around the close. From the tick-by-tick analysis, the optimal strategy for trading the added stock is to sell it short on AD+1 at the market open and to buy it back at the close. At the same time, a further long position in the stock should be taken at AD+1 close until the close of ED. Finally, a further short position should be taken in the stock between ED close and ED+3 close. The profits from these trades are all statistically significant and total almost 7% in gross terms and over 5% after transactions costs. Numerous researchers have documented, based on daily price series, a perceived reduction over time in the index effect as an increased number of investors try to take advantage of it.19 We argue that this masks the profits that are available to arbitrageurs who are willing to trade on an intra-daily basis. While index funds persist in favoring accurate tracking over profitability, arbitrageurs will continue to benefit.