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Does mispricing explain returns following addition to the S&P 500?

Reghelin, Giacomo LU and Nunn, James Alexander LU (2020) NEKN02 20201
Department 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.
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author
Reghelin, Giacomo LU and Nunn, James Alexander LU
supervisor
organization
course
NEKN02 20201
year
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}},
}