<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This paper observes the short-run effects of stock market index composition changes on stock returns on the Zagreb Stock Exchange (ZSE). In that way, event study methodology is employed in order to estimate abnormal returns and compare them amongst three subsets of stocks: those leaving the market index, those entering it, and constantly included stocks. The research included 14 regular and extraordinary revisions of the market index in the period from January 2nd, 2015 until March 21st, 2018. The results have confirmed two research hypotheses: stock exclusions from the market index have a negative effect on stock returns on the ZSE, which is consistent with the price pressure hypothesis; and there exist asymmetric effects of index composition changes on stock returns. This is the first study of this kind on the Croatian stock market, thus more questions need to be answered in future research.</p></abstract>

This paper observes the short-run effects of stock market index composition changes on stock returns on the Zagreb Stock Exchange (ZSE). In that way, event study methodology is employed in order to estimate abnormal returns and compare them amongst three subsets of stocks: those leaving the market index, those entering it, and constantly included stocks. The research included 14 regular and extraordinary revisions of the market index in the period from January 2nd, 2015 until March 21st, 2018. The results have confirmed two research hypotheses: stock exclusions from the market index have a negative effect on stock returns on the ZSE, which is consistent with the price pressure hypothesis; and there exist asymmetric effects of index composition changes on stock returns. This is the first study of this kind on the Croatian stock market, thus more questions need to be answered in future research.

Effects of changes in stock market index composition on stock returns: event study methodology on Zagreb Stock Exchange

University of Zagreb Faculty of Economics and Business

Croatian Review of Economic, Business and Social Statistics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

This paper observes the short-run effects of stock market index composition changes on stock returns on the Zagreb Stock Exchange (ZSE). In that way, event...

Effects of changes in stock market index composition on stock returns: event study methodology on Zagreb Stock Exchange

Published Online: May 27, 2019

Page range: 43 - 54

Received: Jun 25, 2018

Accepted: Apr 04, 2019

DOI: https://doi.org/10.2478/crebss-2019-0005

Keywords
abnormal returns, Croatian stock market, event study, index composition change

© 2019 Tihana Škrinjarić, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Effects of changes in stock market index composition on stock returns: event study methodology on Zagreb Stock Exchange

Published Online: May 27, 2019

Page range: 43 - 54

Received: Jun 25, 2018

Accepted: Apr 04, 2019

DOI: https://doi.org/10.2478/crebss-2019-0005

Keywordsabnormal returns, Croatian stock market, event study, index composition change

© 2019 Tihana Škrinjarić, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
abnormal returns, Croatian stock market, event study, index composition change