All Stocks are Not Created Equal: Evidence from the S&P Indexes Float Adjustment

32 Pages Posted: 18 Mar 2009

Date Written: March 17, 2009

Abstract

I examine the slope of the demand curve for stocks by analyzing the transition of the S&P 500, S&P MidCap 400, and S&P SmallCap 600 from market capitalization to free float weighting, which occurred in 2005. This unique information-free event allows isolating the effect of the decrease in demand for stocks from other possible competing effects offered in the literature. This decrease in demand produces a stock price decline, which is accompanied by significant abnormal trading volume. My main finding is that the slope of the demand curve is related to a stock's beta. Small beta stocks show a permanent decline in stock value, which is consistent with a downward sloping demand curve. In contrast, large beta stocks exhibit a transitory stock price reaction, which supports a flat long-run demand curve for stocks.

Keywords: stock prices, trading volume, event study, demand curve, beta

JEL Classification: G12, G14

Suggested Citation

Biktimirov, Ernest N., All Stocks are Not Created Equal: Evidence from the S&P Indexes Float Adjustment (March 17, 2009). Available at SSRN: https://ssrn.com/abstract=1362221 or http://dx.doi.org/10.2139/ssrn.1362221

Ernest N. Biktimirov (Contact Author)

Brock University, Goodman School of Business ( email )

1812 Sir Isaac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 Ext. 3843 (Phone)