The effect of changes in index constitution: Evidence from the Korean stock market

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This paper examines the effect of changes in the KOSPI 200 index. We find evidence of permanent price effects and partial return reversal for the event stocks. Trading volumes tend to significantly increase during the event period and remain relatively higher than before the event. We also find some evidence of the existence of anticipatory trading effect before the effective dates and volatility effect. The results show that the abnormal return still exists even after adopting factor models and excluding newly added stocks. The indexing methodology of KOSPI 200 conveys the valuable information that the added stocks showed good performance and better earnings relative to the market average and the deleted stocks showed vice versa. In conclusion, member changes in the KOSPI 200 index are not information-free events. © 2010 Elsevier Inc.
Publisher
Elsevier Inc.
Issue Date
2010-09
Language
English
Citation

INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS, v.19, no.4, pp.258 - 269

ISSN
1057-5219
URI
http://hdl.handle.net/10203/93428
Appears in Collection
MT-Journal Papers(저널논문)
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