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Information efficiency changes following FTSE 100 index revisions

Daya, Wael, Mazouz, Khelifa and Freeman, Mark 2012. Information efficiency changes following FTSE 100 index revisions. Journal of International Financial Markets, Institutions and Money 22 (4) , pp. 1054-1069. 10.1016/j.intfin.2012.01.002

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Abstract

This study examines the impact of FTSE 100 index revisions on the informational efficiency of the underlying stocks. Our study spans the 1986–2009 period. We estimate the speed of price adjustment and price inefficiency from the partial adjustment with noise model of Amihud and Mendelson (1987). We report a significant improvement (no change) in the informational efficiency of the stocks added to (deleted from) the FTSE 100 index. The asymmetric effect of additions and deletions on informational efficiency can be attributed, at least partly, to certain aspects of liquidity and other fundamental characteristics, which improve following additions but do not diminish after deletions. Cross-sectional analysis also indicates that stocks with low pre-addition market quality benefit more from joining the index.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Uncontrolled Keywords: Index revisions; Market quality; Liquidity
Publisher: Elsevier
ISSN: 1042-4431
Last Modified: 04 Jun 2017 06:07
URI: http://orca.cf.ac.uk/id/eprint/56678

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