Title: Changes in liquidity associated with removal of companies from the FTSE 100 index

Authors: Ahmed Aboud; Malin Karlsen

Addresses: Faculty of Commerce, Beni-Suef University, Egypt; Faculty of Business and Law, University of Portsmouth, UK ' Faculty of Business and Law, University of Portsmouth, UK

Abstract: This study investigates changes in liquidity associated with removal of companies from the FTSE 100 index during the time period 2008-2016. Using an event study methodology, we document significant negative abnormal returns that are more negative in the period prior to removal and a significant decrease in trading volume once a company is removed from the index. Moreover, regression analysis supports the liquidity hypothesis and documents a significant increase in the spread after removal after controlling for financial crisis impact. Overall, the results report support that changes in liquidity can explain the negative abnormal returns. These findings contribute the theoretical debate regarding the liquidity effects associated with changes in the composition of the FTSE 100 index.

Keywords: liquidity effects; FTSE 100; index changes; trading volume.

DOI: 10.1504/IJMFA.2019.097829

International Journal of Managerial and Financial Accounting, 2019 Vol.11 No.1, pp.38 - 56

Received: 21 Mar 2018
Accepted: 16 Oct 2018
Published online: 13 Feb 2019 *

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