Institutional investment horizon and the S&P 500 index addition

Abstract

This paper aims to examine the effect of institutional investment horizon on the stock response to S&P500 index additions. The study argues that institutional investors with a longer investment horizon will monitor more closely the investee firm, which will likely lead to a better stock response to index addition. The results show that long-term institutional investors improve the stock response to index addition on an event window of 120 days. This evidence suggests that when we look at the different roles of the institutional investors, it is important to account for institutional heterogeneity.