Additions to and Deletions from an Open-Ended Market Index: Evidence from the Australian All Ordinaries

The shares of companies added to (deleted from) closed-end indices such as the S&P 500 experience significant positive (negative) abnormal returns. We examine companies added to or deleted from an open-ended market index where changes occur regularly and can be predicted in advance. Our results are broadly consistent with those for closed-end indices and are robust to benchmarks used to control for market, size and industry effects. Analysis of daily returns and volume shows significant effects around the change date. By construction, companies entering the index outperform index benchmarks prior to inclusion. After controlling for selection bias, additions outperformed over the 4 months prior to inclusion.