Is There an S&P 500 Index Effect? - Federal Reserve Bank of New York

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Is There an S&P 500 Index Effect?

Previous title: “Comovement Revisited”

2014 February 2011 Number 484
Revised November 2012

JEL classification: G10, G12, G14

Authors: Maria Kasch and Asani Sarkar

We find that the firms included in the S&P 500 index are characterized by large increases in earnings, appreciation in market value, and positive price momentum in the period preceding their index inclusion. This strong preinclusion performance predicts 1) the permanent increase of market value and 2) the change in return comovement, reflected in declines of size, value, and momentum betas, following index inclusion. Nonevent firms with similar performance experience similar appreciation in value and changes in comovement coincident with the event firms. Contrary to the consensus in the literature, our results indicate that—after accounting for the firms’ extraordinary preinclusion performance—index inclusion has no permanent effect on value and comovement.

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55 pages / 755 kb

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