The Effect on Stock Price from Changes to the Russell Indexes

Peer reviewed: 
No, item is not peer reviewed.
Scholarly level: 
Graduate student (Masters)
Date created: 
2009-08
Keywords: 
Russell 1000 index
Russell 2000 index
Pure additions
Pure deletions
Upwards shifts
Downward shifts
IPO additions
Abnormal returns
Temporary effects
Permanent effects
Abstract: 

This paper examines the pricing anomalies resulting from the annual reconstitution of the Russell 2000 index and quarterly Initial Public Offering (IPO) additions to the Russell 1000 index and Russell 2000 index. We based our research partly on the earlier work of Biktimirov, Cowan, and Jordan (2004), which was essentially one of the first to examine the effect of index listing on smaller stocks. Our research differs, however, in that we used a later sample period for our tests, investigated the effects of IPOs now being added to the indexes on a quarterly basis, rather than just at the annual reconstitution, and ignored the trading volume analysis as well as the influences of institutional ownership. The results we found were mixed relative to the earlier paper as we obtained evidence of both temporary and permanent price effects stemming from changes to the indexes. In addition, we observed a much greater degree of volatility in the abnormal returns of the affected stocks, most of which were very significant at the various event intervals measured.

Description: 

GAWM Project-Simon Fraser University

Language: 
English
Document type: 
Graduating extended essay / Research project
File(s): 
Senior supervisor: 
Peter Klein
Department: 
Beedie School of Business-Segal Graduate School
Statistics: