The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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The Disappearing Index Effect
Published: 12/20/2024 | DOI: 10.1111/jofi.13410
ROBIN GREENWOOD, MARCO SAMMON
The abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 7.4% in the 1990s to less than 1% over the past decade. This has occurred despite a significant increase in the share of stock market assets linked to the index. A similar pattern has occurred for index deletions, with large negative abnormal returns during the 1990s but an average return of only 0.1% between 2010 and 2020. We investigate the drivers of this phenomenon and discuss implications for market efficiency. We document a similar decline in the index effect among other families of indices.