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The effects of changes in index composition on stock prices and volume: Evidence from the Istanbul stock exchange

Authors
Journal
International Review of Financial Analysis
1057-5219
Publisher
Elsevier
Publication Date
Volume
17
Issue
1
Identifiers
DOI: 10.1016/j.irfa.2006.10.002
Keywords
  • Stock Index Revisions
  • Index Composition
  • Price And Volume Effects
  • Market Efficiency

Abstract

Abstract Previous evidence has shown that stocks included in (excluded from) an index exhibit significant positive (negative) abnormal returns on the announcement day, and that trading volume is affected by the event. This study examines the price and volume effects on stocks associated with the changes in the value-weighted index composition of two indices, of the ISE, where the index funds and index derivatives do not exist. Consistent with previous evidence, stocks included in (excluded from) the index tend to generate positive (negative) abnormal returns in ISE. Volume and volume volatility are also significantly affected. Our results seem to support the hypotheses of price-pressure, imperfect substitute and attention due to the lack of index-funds and derivatives market in Turkey.

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