Comovement of newly added stocks with national market indices: Evidence from around the world

Stijn Claessens*, Yishay Yafeh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

34 Scopus citations

Abstract

We document increased stock price comovement for companies added to major indices around the world. Using data on forty developed and emerging markets for 10 years, we find that in most markets, when added to a major index, firms experience an increase in their beta (especially if their pre-inclusion beta is low) and in the extent to which market returns explain firm stock returns (R2). Stock turnover and analyst coverage also typically increase upon inclusion. Various empirical tests suggest that the category/habitat views of Barberis, Shleifer and Wurgler explain most of these results, although information-related factors also account for some findings.

Original languageAmerican English
Pages (from-to)203-227
Number of pages25
JournalReview of Finance
Volume17
Issue number1
DOIs
StatePublished - Jan 2013

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