The Index Revision Party
Posted: 24 May 2004
Academic interest in stock index revisions has grown recently. This paper discusses the six different hypotheses that have been put forward, and then examines the annual revision of the AEX index in the Netherlands. This particular index is interesting, since the revision rules enable investors to anticipate changes in both constituents and index weights long in advance. Our results suggest that attention and temporary price pressure play a role in the observed revision effect. A portfolio containing those stocks expected to benefit from the index revision is showing an outperformance of up to 7% in the weeks before the revision, while losers are unaffected. Around the revision day we find indications of temporary price pressure for winners as well as losers.
Keywords: Revision, index adjustment, additions, deletions, AEX
JEL Classification: G14
Suggested Citation: Suggested Citation