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Comovement revisited

Kasch, Maria
Sarkar, Asani
Year of Publication: 
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 484
We find, unlike earlier studies, that there is no rise in the market betas of stocks that enter the S&P 500 index when the estimated factor model is that of Fama and French (1993). We also find that SMB and HML factor betas decline after the stocks are added to the index. This decline is explained by strong increases in earnings and in the market value of the event stocks in the period around - and, in particular, prior to - their inclusion in the index. We suggest that inclusions to the S&P 500 index are informative events that trigger a reassessment of the risk of newly added firms by drawing the broad market's attention to their extraordinary growth in size and profitability.
S&P 500 index additions
Fama-French factors
attentiongrabbing event
earnings and size growth
market expectations
Document Type: 
Working Paper

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