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Asymmetric stock price and investor awareness reactions to changes in the Nasdaq 100 index

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Abstract

We examine market responses to changes in the Nasdaq 100 index membership and find asymmetric stock price and investor awareness reactions. Stocks added to the Nasdaq 100 index for the first time experience permanent price gains and significant increases in investor awareness, whereas repeated additions and new deletions exhibit temporary stock price changes and no significant changes in investor awareness. Stock liquidity improves for new additions and repeated additions but worsens for new deletions. Importantly, investor awareness proxies are significantly related to cumulative abnormal returns around the Nasdaq 100 reconstitution even in the presence of liquidity and other controlling factors. Taken together, the observed results are consistent with the investor awareness hypothesis.

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Notes

  1. Financial instruments benchmarked to the Nasdaq 100 index are available in 28 countries, exchange-traded products tracking the index account for over $60 billion in assets, and the notional value of derivatives benchmarked to the index exceeds $1 trillion (Smith and Slen 2018).

  2. To avoid any potential bias associated with unscheduled index changes, we do not examine 91 additions that occurred at different times throughout a year during the sample period.

  3. By way of comparison, Yu et al. (2015) report a similar increase of 1.80 analysts for regular, year-end additions in the six months after the Nasdaq 100 index change announcement from the six months before for the 1994–2009 period.

  4. As robustness checks, we also used 90-day and 270-day periods. The results are qualitatively unchanged.

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Authors and Affiliations

  1. Goodman School of Business, Brock University, 1812 Sir Isaac Brock Way, St. Catharines, ON, L2S 3A1, Canada

    Ernest N. Biktimirov & Yuanbin Xu

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  1. Ernest N. Biktimirov
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  2. Yuanbin Xu
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Correspondence to Ernest N. Biktimirov.

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Biktimirov, E.N., Xu, Y. Asymmetric stock price and investor awareness reactions to changes in the Nasdaq 100 index. J Asset Manag 20, 134–145 (2019). https://doi.org/10.1057/s41260-019-00108-6

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