Can we profit from index additions and deletions? empirical evidence of Hang Seng index constituents

Abstract

We empirically investigate the price and volume effects of changes to Hang Seng Index Constituents. Our results show that for addition firms, stock price runs up shortly before the event day, but drops afterwards. The statistics from the 100 days event window suggest added firms are on average underperformed in the long run. Consistent with previous literature, we do not find any permanent effects on deletion firms. We contribute by shedding some lights on trading strategy of index modifications.