A REVIEW OF TYPICAL FIRM DELETION FROM THE S&P 500
Open Access
Author:
Li, Rena
Area of Honors:
Accounting
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Orie Edwin Barron, Thesis Supervisor Orie Edwin Barron, Thesis Honors Advisor Dr. Brian Spangler Davis, Faculty Reader
Keywords:
Finance S&P 500 index inclusion index exclusion cumulative abnormal returns medians
Abstract:
Investors and firms are always trying to predict the future, but what is certain is change. In this paper, I investigate S&P 500 changes to further research on the supposed presence of an asymmetric price response between index additions and deletions. By replicating the original study which asserted the existence of asymmetry, I place a particular focus on the deletions due to the lack of agreement on the subject and report the cumulative abnormal return medians of deleted firms. Medians contribute typicality, while means fall susceptible to outliers and as a result, skewness. By providing the median cumulative abnormal returns of deleted S&P 500 firms, future S&P member firms can understand and predict what is standard or ordinary upon index deletion. Unfortunately, the answer of typical deletion is bleak with most deleted firms declining in share price initially and even 60 trading days out. The medians do not lie.
