Anticipatory effects in the FTSE 100 index revisions

• Autor(a) principal: Fernandes, Marcelo
• Data de Publicação: 2013
• Outros Autores: Mergulhão, João de Mendonça
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
• Texto Completo: http://hdl.handle.net/10438/11337
• topic: Additions; Imperfect substitutes; Index composition; Price pressure; Economia; Negociação comercial; Índices de preços

This paper examines the price impact of trading due to expected 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 e ects. We propose a panel-regression event study that backs out these anticipatory e ects by looking at the price impact of the ex-ante proba-bility of changing index membership status. Our ndings reveal that anticipative trading explains about 40% and 23% of the cumulative abnormal returns of additions and deletions, respectively. We con rm these in-sample results out of sample by tracking the performance of a trading strategy that relies on the addition/deletion probability estimates. The perfor-mance is indeed very promising in that it entails an average daily excess return of 11 basis points over the FTSE 100 index.