S&P 500 Affiliation and Stock Price Informativeness

Document Type

Article

Publication Date

7-2-2020

School

Finance

Abstract

© 2019, © 2019 The Institute of Behavioral Finance. When firms are added to a stock index, more information should be discovered, traded on, and incorporated into their stock prices, making them more informative. We test this hypothesis using a large sample of additions to the S&P 500 index. Using two alternative statistical tests, we find that the stocks added experience more random, less predictable return and, thus, appear to be priced more efficiently information-wise. We further find concurrent increases in institutional ownership and investor awareness, which tend to contribute to the higher pricing efficiency, adding to the literature. These findings should be of interest to academics and practitioners.

Publication Title

Journal of Behavioral Finance

Volume

21

Issue

3

First Page

219

Last Page

232

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