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ABSTRACT This paper examines the impact on stock returns of changes in the Standard & Poor's (S&P) 500 index. S&P states that firms are not added to or deleted from the index for valuation reasons but rather to maintain or improve the index's representative character. Results from market response tests indicate that stocks added to (deleted from) the index since 1975 experience a significant positive (negative) announcement day excess return. No announcement effect occurs in S&P changes prior to 1976. These announcement effects may be explained by a price‐pressure hypothesis or by an information effect. Results of tests conducted to isolate which of these phenomena is present are reported.
Lamoureux et al. (Sun,) studied this question.