Asymmetric stock price and investor awareness reactions to changes in the Nasdaq 100 index

  • Ernest N. BiktimirovEmail author
  • Yuanbin Xu
Original Article


We examine market responses to changes in the Nasdaq 100 index membership and find asymmetric stock price and investor awareness reactions. Stocks added to the Nasdaq 100 index for the first time experience permanent price gains and significant increases in investor awareness, whereas repeated additions and new deletions exhibit temporary stock price changes and no significant changes in investor awareness. Stock liquidity improves for new additions and repeated additions but worsens for new deletions. Importantly, investor awareness proxies are significantly related to cumulative abnormal returns around the Nasdaq 100 reconstitution even in the presence of liquidity and other controlling factors. Taken together, the observed results are consistent with the investor awareness hypothesis.


Abnormal return Event study Index changes Investor awareness Liquidity Nasdaq 100 index 

JEL Classification

G11 G12 G14 



  1. Afego, P.N. 2017. Effects of changes in stock index compositions: A literature review. International Review of Financial Analysis 52: 228–239.Google Scholar
  2. Amihud, Y. 2002. Illiquidity and stock returns: Cross-section and time-series effects. Journal of Financial Markets 5(1): 31–56.Google Scholar
  3. Amihud, Y., and H. Mendelson. 1986. Asset pricing and the bid-ask spread. Journal of Financial Economics 17(2): 223–249.Google Scholar
  4. Becker-Blease, J.R., and D.L. Paul. 2006. Stock liquidity and investment opportunities: Evidence from index additions. Financial Management 35(3): 35–51.Google Scholar
  5. Beneish, M.D., and J.C. Gardner. 1995. Information costs and liquidity effects from changes in the Dow Jones Industrial Average list. Journal of Financial and Quantitative Analysis 30(1): 135–157.Google Scholar
  6. Bessembinder, H., and H.M. Kaufman. 1997. A comparison of trade execution costs for NYSE and NASDAQ-listed stocks. Journal of Financial and Quantitative Analysis 32(3): 287–310.Google Scholar
  7. Biktimirov, E.N., A.R. Cowan, and B.D. Jordan. 2004. Do demand curves for small stocks slope down? Journal of Financial Research 27(2): 161–178.Google Scholar
  8. Chen, H., G. Noronha, and V. Singal. 2004. The price response to S&P 500 index additions and deletions: Evidence of asymmetry and a new explanation. Journal of Finance 59(4): 1901–1929.Google Scholar
  9. Corrado, C.J. 1989. A nonparametric test for abnormal security-price performance in event studies. Journal of Financial Economics 23(2): 385–395.Google Scholar
  10. Corrado, C.J., and T.L. Zivney. 1992. The specification and power of the sign test in event study hypothesis tests using daily stock returns. Journal of Financial and Quantitative Analysis 27(3): 465–478.Google Scholar
  11. Corwin, S.A., and P. Schultz. 2012. A simple way to estimate bid-ask spreads from daily high and low prices. Journal of Finance 67(2): 719–759.Google Scholar
  12. Cowan, A.R. 1992. Nonparametric event study tests. Review of Quantitative Finance and Accounting 2(4): 343–358.Google Scholar
  13. Denis, D.K., J.J. McConnell, A.V. Ovtchinnikov, and Y. Yu. 2003. S&P 500 index additions and earnings expectations. Journal of Finance 58(5): 1821–1840.Google Scholar
  14. Elliott, W.B., B.F. Van Ness, M.D. Walker, and R.S. Warr. 2006. What drives the S&P 500 inclusion effect? An analytical survey. Financial Management 35(4): 31–48.Google Scholar
  15. Elliott, W.B., and R.S. Warr. 2003. Price pressure on the NYSE and Nasdaq: Evidence from S&P 500 index changes. Financial Management 32(3): 85–99.Google Scholar
  16. Erwin, G.R., and J.M. Miller. 1998. The liquidity effects associated with addition of a stock to the S&P 500 index: Evidence from bid/ask spreads. Financial Review 33(1): 131–146.Google Scholar
  17. Fama, E.F., and K.R. French. 1993. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33(1): 3–56.Google Scholar
  18. Geppert, J.M., S.I. Ivanov, and G.V. Karels. 2011. An analysis of the importance of S&P 500 discretionary constituent changes. Review of Quantitative Finance and Accounting 37(1): 21–34.Google Scholar
  19. Haensly, P.J. 2003. How did the Dow do today? Journal of Asset Management 4(4): 258–276.Google Scholar
  20. Harris, L., and E. Gurel. 1986. Price and volume effects associated with changes in the S&P 500 list: New evidence for the existence of price pressures. Journal of Finance 41(4): 815–829.Google Scholar
  21. Hegde, S.P., and J.B. McDermott. 2003. The liquidity effects of revisions to the S&P 500 index: An empirical analysis. Journal of Financial Markets 6(3): 413–459.Google Scholar
  22. Jain, P.C. 1987. The effect on stock price of inclusion in or exclusion from the S&P 500. Financial Analysts Journal 43(1): 58–65.Google Scholar
  23. Jain, P.K., and J.-C. Kim. 2006. Investor recognition, liquidity, and exchange listings in the reformed markets. Financial Management 35(2): 21–42.Google Scholar
  24. Kadlec, G.B., and J.J. McConnell. 1994. The effect of market segmentation and illiquidity on asset prices: Evidence from exchange listings. Journal of Finance 49(2): 611–636.Google Scholar
  25. Kappou, K., C. Brooks, and C. Ward. 2010. The S&P500 index effect reconsidered: Evidence from overnight and intraday stock price performance and volume. Journal of Banking & Finance 34(1): 116–126.Google Scholar
  26. Lesmond, D.A., J.P. Ogden, and C.A. Trzcinka. 1999. A new estimate of transaction costs. Review of Financial Studies 12(5): 1113–1141.Google Scholar
  27. Li, M., T. McCormick, and X. Zhao. 2005. Order imbalance and liquidity supply: Evidence from the bubble burst of NASDAQ stocks. Journal of Empirical Finance 12(4): 533–555.Google Scholar
  28. Mama, H.B., S. Mueller, and U. Pape. 2017. What’s in the news? The ambiguity of the information content of index reconstitutions in Germany. Review of Quantitative Finance and Accounting 49(4): 1087–1119.Google Scholar
  29. Mase, B. 2007. The impact of changes in the FTSE 100 index. Financial Review 42(3): 461–484.Google Scholar
  30. Marciniak, M. 2012. Information effects of announced stock index additions: Evidence from S&P 400. Journal of Economics and Finance 36(4): 822–849.Google Scholar
  31. Masulis, R.W., and L. Shivakumar. 2002. Does market structure affect the immediacy of stock price response to news? Journal of Financial and Quantitative Analysis 37(4): 617–648.Google Scholar
  32. Merton, R.C. 1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42(3): 483–510.Google Scholar
  33. Nasdaq. Nasdaq 100. (2018). Accessed 2 January 2018.
  34. Opong, K., and A. Siganos. 2013. Compositional changes in the FTSE100 index from the standpoint of an arbitrageur. Journal of Asset Management 14(2): 120–132.Google Scholar
  35. Rahman, S., C. Krishnamurti, and A.C. Lee. 2005. The dynamics of security trades, quote revisions, and market depths for actively traded stocks. Review of Quantitative Finance and Accounting 25(2): 91–124.Google Scholar
  36. Shleifer, A. 1986. Do demand curves for stocks slope down? Journal of Finance 41(3): 579–590.Google Scholar
  37. Smith, J. W., & Slen, E. (2018). The Nasdaq-100: Tracking innovation in large cap growth. Accessed 13 March 2018.
  38. Weston, J.P. 2000. Competition on the Nasdaq and the impact of recent market reforms. Journal of Finance 55(6): 2565–2598.Google Scholar
  39. Wurgler, J., and E. Zhuravskaya. 2002. Does arbitrage flatten demand curves for stocks? Journal of Business 75(4): 583–608.Google Scholar
  40. Yu, S., G. Webb, and K. Tandon. 2015. What happens when a stock is added to the Nasdaq-100 index? What doesn’t happen? Managerial Finance 41(5): 480–506.Google Scholar
  41. Zhou, H. 2011. Asymmetric changes in stock prices and investor recognition around revisions to the S&P 500 index. Financial Analysts Journal 67(1): 72–84.Google Scholar

Copyright information

© Springer Nature Limited 2019

Authors and Affiliations

  1. 1.Goodman School of BusinessBrock UniversitySt. CatharinesCanada

Personalised recommendations