The effect of additions to or deletions from the TSE 300 Index on Canadianshare prices

In this paper we examine shares that have been added to or deleted from the TSE 300 Index to determine whether abnormal price movements have occurred. We apply the dummy variable approach to event study methodology and adjust the estimated standard errors for arbitrary heteroscedasticity and cluster ing of events. We also use a non-parametric method of inference. Like autho rs of U.S, studies, we find that the market reacts positively to inclusion and negatively to deletion, albeit not significantly in the latter case. Th e information content of inclusion does not account for the entire share pr ice response, lending support to the hypothesis of increased purchases by i ndex funds.