NEW EVIDENCE ON STOCK-PRICE EFFECTS ASSOCIATED WITH CHANGES IN THE S-AND-P-500 INDEX

Since October 1989, Standard and Poor's has (when possible) announced changes in the composition of the S&P 500 index 1 week in advance. Bec ause index funds hold S&P 500 stocks to minimize tracking error, index composition changes since this date provide an opportunity to examine the market reaction to an anticipated change in the demand for a stoc k. Using post-October 1989 data, we document significantly positive (n egative) postannouncement abnormal returns that are only partially rev ersed following additions (deletions), These results indicate the exis tence of temporary price pressure and downward-sloping long-run demand curves for stocks and represent a violation of market efficiency.