The Effect of Open-end Index Revisions - A study of market efficiency on the Swedish Stock Exchange

Abstract: This study acknowledges the Swedish stock exchange's alignment with the efficient market hypothesis by analysing the change of constituents of the open-end OMX Stockholm Benchmark Index through an event study. We find evidence of abnormal return at the date of announcement for inclusions and exclusions. In the long-run, this is found to be explained by the information signalling hypothesis, implying a signalling effect from the change of constituents. This validates the semi-strong form of the efficient market hypothesis. Furthermore, we find evidence of abnormal return leading up to the announcement. This is believed to stem from risk arbitrageurs predicting changes of constituents. Evidence of abnormal volume at the effective date is found for both inclusions and exclusions.