Title: Comovement and FTSE 100 index changes

Authors: Jerry Coakley; Periklis Kougoulis; John C. Nankervis

Addresses: Essex Business School and Essex Finance Centre, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ, UK ' College of Business Administration, Abu Dhabi University, P.O. Box 59911, Abu Dhabi, UAE ' Essex Business School and Essex Finance Centre, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ, UK

Abstract: We employ the Barberis et al. (2005) methodology to investigate the impact of changes to the FTSE 100 index on return comovement 1992-2002. For FTSE entries, the average weekly increase in the beta coefficient is 0.38 in univariate regressions and 0.60 in bivariate regressions that control for the return on non-FTSE stocks. Stocks deleted from the index display the opposite pattern post exit. The results are robust to a number of factors including size, industry and non-trading effects. They are difficult to explain within a classical framework but complement those found for the USA, Japan and Canada in supporting behavioural finance views of comovement.

Keywords: behavioural finance; style investment; index funds; comovement; FTSE 100.

DOI: 10.1504/IJBAF.2014.061440

International Journal of Behavioural Accounting and Finance, 2014 Vol.4 No.2, pp.93 - 112

Received: 14 Dec 2012
Accepted: 25 Oct 2013
Published online: 30 Apr 2015 *

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