Does mispricing explain returns following addition to the S&P 500?
(2020) NEKN02 20201Department of Economics
- Abstract
- This study investigates the relationships between mispricing and returns following addition to the S&P 500. We find evidence that the index premium is demand-driven, resulting in mispricing that is subsequently exploited by rational investors. We find that index premia are temporary, undergoing a full reversal within 20 days. Using a novel approach to estimating mispricing, we find that post-addition returns are negatively related to mispricing. Furthermore, the average degree of mispricing decreases following addition, lending support to the theory that increased scrutiny due to addition to the S&P 500 aids investors in identifying and exploiting pricing inefficiencies.
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9014402
- author
- Reghelin, Giacomo LU and Nunn, James Alexander LU
- supervisor
- organization
- course
- NEKN02 20201
- year
- 2020
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Index premium, S&P 500, Mispricing, Market efficiency
- language
- English
- id
- 9014402
- date added to LUP
- 2020-08-29 11:20:54
- date last changed
- 2020-08-29 11:20:54
@misc{9014402, abstract = {{This study investigates the relationships between mispricing and returns following addition to the S&P 500. We find evidence that the index premium is demand-driven, resulting in mispricing that is subsequently exploited by rational investors. We find that index premia are temporary, undergoing a full reversal within 20 days. Using a novel approach to estimating mispricing, we find that post-addition returns are negatively related to mispricing. Furthermore, the average degree of mispricing decreases following addition, lending support to the theory that increased scrutiny due to addition to the S&P 500 aids investors in identifying and exploiting pricing inefficiencies.}}, author = {{Reghelin, Giacomo and Nunn, James Alexander}}, language = {{eng}}, note = {{Student Paper}}, title = {{Does mispricing explain returns following addition to the S&P 500?}}, year = {{2020}}, }