Price performance and liquidity effects of index additions and deletions: evidence from Chinese equity markets

This paper investigates the impacts of index revision on the return and liquidity of Chinese equities, using a sample of 69 stocks added to or deleted from the S&P/CITIC 300 index over the period of October 2004–August 2007. Our findings show that stock prices positively respond to index addition, and negatively respond to index deletion events. Furthermore, our study provides evidence in support of long-term improvement in liquidity for both stock addition and stock deletion. Overall, the results are largely consistent with prior empirical findings, but also appear to be in line with the predictions of some behavioral finance models.