Descrição: This paper examines the price impact of changes in the FTSE 100 index composition. We focus on the latter index because it employs publicly-known objective criteria to determine membership and hence it provides a natural context to investigate anticipatory trading effects. We propose a panel-regression event study that backs out these anticipatory effects by looking at the price impact of the ex-ante probability of changing index membership status. Our findings reveal that anticipative trading explains about 40\% and 23\% of the cumulative abnormal returns of additions and deletions, respectively. We confirm these in-sample results out of sample by tracking the performance of a trading strategy that relies on the addition/deletion probability estimates. The performance is indeed very promising in that it easily first-order stochastic dominates the returns on buying and holding the FTSE 100 index.

Situação: Em andamento. Início: 2010. Natureza: Pesquisa.

Integrantes: João Mergulhão, Marcelo Fernandes.