The price effects of FTSE 100 index revision: What drives the long-term abnormal return reversal?

Khelifa Mazouz*, Brahim Saadouni

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

We examine short- and the long-term price effect associated with the FTSE 100 index revisions. We control for both heteroskedastic nature of the residual and the change, between the estimation and the test period, in the beta coefficient of the standard market model. Our findings reveal no relationship between the long-term price reversals and the change in the discount rate, as approximated by the beta coefficient of the market model. Overall, we provide strong evidence in favour of the price pressure hypothesis, where the price increase (decrease) gradually starting before the announcement an inclusion (exclusion) and reverses completely in less than two weeks after the index revision date.

Original languageEnglish
Pages (from-to)501-510
Number of pages10
JournalApplied Financial Economics
Volume17
Issue number6
DOIs
Publication statusPublished - 1 Mar 2007

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