Information content of index inclusions： Evidence from China.pdfVIP

Nov．2007，VoI~3，No．1l(SerialNo30) Journal of Modern Accounting and Auditing，ISSN1548-6583，USA Information content of index inclusions：Evidence from China SUNLi—qiang,CHENXiao-yue (Institute ofAccountancy,Tsinghua University,Belting 100084,China) Abstract：This paper examines whether index inclusion has information content and the downward．sloping demand curve hypothesis in China．Wle investigate the stock price and volume effects when stocks ale included in two major stock indexes，the Shanghai Stock Exchange 30 Index(SH30)and the Shenzhen Component 40 Index (SZ40)．Furthermore，we also study the performance changes after index inclusion．W_e find significant price and volume increases for the stocks selected by the SH30 when the index was created and announced．Thus．the original inclusion may not be an inform ation-free event．For subsequent index inclusions．we observe significant abnormal returns but not abnormal trade volume around the announcement date．However,the stock retums quickly reversed at the post—announcement period．MoreoveL the financial perform ance of index included firms does not improve．The evidence does not support the price pressure hypothesis in China． Key words：index inclusion；inform ation content；firm performance；abnorm aJ return 1．Introduction A large number of studies ale related to the impact of index inclusion of the SP 500 Index on the price and trading volume of added stocks．Since Standard＆ Poor announced that index inclusion and deletion have no correlation with the viewpoint of investment value ．if index inclusion does not have information content，then why did previous studies find positive stock price reactions to the t?In other words，the price increases must be related to other effects such as the down ward sloping demand curve of stock or tempor