Valuation Effects of Index Inclusions – Evidence from Sweden

The paper studies the volume and share price effects on stocks added to a domestic as well as an overseas market index. Contrary to the vast majority of previous research, we document a mildly negative impact on stock prices, particularly for Swedish stocks added to overseas indices. Attempts to explain this finding, by linking it to an explanatory variable, point to a negative relationship with performance during the six months preceding index inclusion. Our findings thus indicate that index inclusion can be an indirect trigger of price reversal, when the index selection criteria themselves are an indication of strong trading activity in the period ex ante index inclusion.


1. Introduction
2. An overview of the mutual fund market in Sweden
2.1 Interviews with fund managers
3. Related literature
4. Sample Selection, Data and Definition of Variables
5. Methodology
5.1 Volume Study
5.2 Event Study
5.3 Regression Study
5.4 Testing the significance of our results
6. Hypotheses
6.1 Null and Alternative Hypothesis for the Volume Study
6.2 Null and Alternative Hypothesis for the Event Study
6.3 Null and Alternative Hypothesis for the Regression Study
7. Results
7.1 Volume effects
7.2 Return effects
7.3 Multivariate analysis
8. Conclusion
8.1 Implications of our findings
8.2 Suggestions for further research

Author: Jacob Andelius,Mathias Skrutkowski

Source: Stockholm School of Economics