2006-07-20 05:49:07 · 5 answers · asked by Hippyghost 1 in Business & Finance ➔ Investing
There have been studies done on what happens when a stock is added to the S&P 500. One study was by Bob Whaley at Duke's Fuqua School of Business.
In theory, the price should increase because there will be increased demand for the stock due to mutual funds tracking the S&P 500. This happens -- it is usually a two or three percent increase in value. Theory suggests that the increase should occur when the fact is announced -- but since many portfolio managers don't buy until it is actually put into the index, the jump up occurs on that date.
Something similar should happen to Russell Index stocks. Since the Russell isn't used as much as a fund benchmark, I would expect the effect to be less for your stock than for one added to the S&P.
2006-07-20 06:39:05 · answer #1 · answered by Ranto 7 · 1⤊ 1⤋
Russell 1000, Russell 2000, or Russell 3000?
Which stock?
Without this info, we are severely limited, and will have to explain more.
If it is one of the larger stocks in one of the larger indexes, then it will have a greater institutional following. Many funds track the indexes, so there will be some buying to correct their funds, if the prerequisites mentioned here follow.
Large funds with billions of dollars to invest, don't waste their time on small-cap stocks.
Either way, the stock will be more visable than before, have less risk, now that it is "accepted," and the additional advertising should generate more interest in the stock overall.
Watch the stock price closely on the day of listing. It may offer a good selling opportunity.
2006-07-20 13:31:34 · answer #2 · answered by dredude52 6 · 0⤊ 0⤋
It should not have any influence on pricing, however it may give it more exposure that it hasn't received before being listed in the Russel Index.
2006-07-20 12:52:38 · answer #3 · answered by drdan976 2 · 1⤊ 0⤋
Theoretically, it shouldn't have any affect on price, but when a stock get's listed on an exchange that his higher listing requirements that then previous exchange, that price could rally (at least temporarily) because of the perceived belief that the company met the more stringent listing requirements.
You just kind of have to watch and see.
2006-07-20 13:12:36 · answer #4 · answered by 4XTrader 5 · 0⤊ 0⤋
It should have no effect whatsoever. But investor might sell the stock as soon as the transition occurs. But you should recover the loss in no time at all.
2006-07-20 13:16:27 · answer #5 · answered by A 4 · 0⤊ 0⤋