An Anatomy of the “S&P Game”: The Effects of Changing the Rules




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    • Associate Professor, School of Business, Indiana University, and T. Austin Finch Foundation Professor, Fuqua School of Business, Duke University. This research was supported by the Futures and Options Research Center at the Fuqua School of Business, Duke University. We gratefully acknowledge comments and suggestions by Nick Bollen, Tom Smith, and René Stulz, research assistance by Justin Whaley, and the information on index funds provided by Richard Wolff and Dave Brown of The Vanguard Group of Investment Companies, Rick Kilcollin, Andrew Olma, and Jeff Reyburn of Wells Fargo Nikko Investment Advisors, and Elliott Shurgin of Standard and Poor. We are especially grateful for the detailed suggestions of the referee.


This study analyzes the effects of changes in S&P 500 index composition from January 1986 through June 1994, a period during which Standard and Poor's began its practice of preannouncing changes five days beforehand. The new announcement practice has given rise to the “S&P game” and has altered the way stock prices react. We find that prices increase abnormally from the close on the announcement day to the close on the effective day. The overall increase is greater than under the old announcement policy although part of the increase reverses after the stock is included in the index.