The Price Response to S&P 500 Index Additions and Deletions: Evidence of Asymmetry and a New Explanation


  • Honghui Chen,

  • Gregory Noronha,

  • Vijay Singal

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    • Chen, Norohna, and Singal are from University of Central Florida, Arizona State University West, and Virginia Tech, respectively. We thank Greg Kadlec, Raman Kumar, Carole Gresse, and especially an anonymous referee and the editor, Rick Green, for comments. We are also grateful to seminar participants at Virginia Tech, Arizona State University West, Loyola College in Maryland, 2002 FMA meetings in San Antonio, 2002 EFA meetings in Berlin, University at Albany, University of Central Florida, University of South Florida, St. Petersburg, Saint Louis University, Drexel University, Penn State Great Valley, George Washington University, and the 2002 FMA International meetings in Copenhagen for comments. Singal acknowledges partial financial support from a Virginia Tech summer grant.


We study the price effects of changes to the S&P 500 index and document an asymmetric price response: There is a permanent increase in the price of added firms but no permanent decline for deleted firms. These results are at odds with extant explanations of the effects of index changes that imply a symmetric price response to additions and deletions. A possible explanation for asymmetric price effects arises from the changes in investor awareness. Results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of S&P 500 index additions and deletions.