Forums  > General  > how much does membership in SPY raise a stock‚Äôs price?  
     
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Rashomon


Total Posts: 202
Joined: Mar 2011
 
Posted: 2019-05-05 19:19
Has anyone here either done a computation themselves or spends more time on SSRN than I care to anymore?

EspressoLover


Total Posts: 375
Joined: Jan 2015
 
Posted: 2019-05-06 19:54
This paper estimates ~9%.

I will say, this topic is hard. Especially in modern times, when many sophisticated traders are trying to capture this premium ahead of time. It's not like the premium's going to fully realize on the announcement date. It's fairly predictable which names will end up getting added/deleted.

Anticipating this, traders will buy up positions for stocks at the precipice. So you have to measure far enough back to capture the anticipatory run-up. But if you look at the returns from longer horizon, you start running into selection bias. Do companies experience high returns because they were about to be added to the index? Or is it that a company with high-returns become large/visible enough to get added at the next reconstitution.

Good questions outrank easy answers. -Paul Samuelson

mtsm


Total Posts: 236
Joined: Dec 2010
 
Posted: 2019-05-08 17:13
PM'ed you EL. Need some guidance on a tangentially related topic. Thanks.
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