Title: Price and volume effects associated with scheduled changes in constituents of index: study of NIFTY index in India

Authors: Mayank Joshipura; Sundaram Janakiramanan

Addresses: School of Business Management, NMIMS, Mumbai, India ' SIM University, 461 Clementi Road, 599491, Singapore

Abstract: This paper examines price and liquidity effects associated with scheduled index reorganisation in NIFTY surrounding its announcement and effective days. The results show that there are no significant abnormal positive returns associated with index inclusion surrounding announcement day. Significant positive abnormal returns associated with inclusion are present on effective day but fails to sustain. Significant negative price effect associated with exclusion of stocks is observed through the announcement window and indicates that exclusion from index is treated as negative. Negative price effect is observed for exclusion closer to and on effective day but that also does not sustain. No significant and sustainable change in trading volume is associated with index reorganisation. Increase in volume associated with inclusion and exclusion of securities is found on effective day, which can be attributed to index funds and ETF activity. Results of this study offers evidence for price pressure and against liquidity hypothesis.

Keywords: market efficiency; event studies; index reorganisation; price effect; volume effect; liquidity effect; NIFTY index; India; positive abnormal returns; price pressure.

DOI: 10.1504/AAJFA.2015.067824

Afro-Asian Journal of Finance and Accounting, 2015 Vol.5 No.1, pp.21 - 36

Received: 24 Jun 2014
Accepted: 13 Oct 2014
Published online: 18 Mar 2015 *

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