Financial Education

Chen, Noronha and Singal published an article in the Second Quarter 2006 Journal of Investment Management examining their observation that stocks added to the S&P 500 experience a permanent price increase, whereas deleted firms suffer only a temporary decline.

The authors propose that the asymmetric return response is due to investor awareness. Being added to the S&P 500 makes more investors aware of a stock, but deleting it from the index does not cause investors to become unaware of it. To test this theory, they use the number of registered shareholders as a proxy for awareness. The results support the awareness hypothesis.

For more information, see all articles on: Investing in Stocks, Investment Returns, Valuation

See also:

Dividends as Cash Flow

Selling Short

Implied Growth Rates

How Transparency Affects Stock Valuation

Margin Transactions