Price and Volume Response to NASDAQ 100 Index Additions and Deletions - Dissertation Example

The paper “Price and Volume Response to NASDAQ 100 Index Additions and Deletions” is a unique example of a finance & accounting dissertation. This paper aims to investigate and report on the effect of adding to, and deleting from the NASDAQ 100, on a stock’s price and volume for the stocks added to or deleted from the index between 2004 -2007. Previous studies have shown that the NASDAQ market reacts to public announcements much like the general market as a whole, so that; positive news leads to bullish movement in price and volume, while negative news leads to bearish movement in price and volume.

The ranking and rebalancing methodology of the NASDAQ 100 is very transparent and controlled which aids in mitigating most of the volatility observed in other indexes. However, this does not exempt the stocks included on, or excluded from the index, from experiencing abnormal returns and volume, especially in the time immediately before and after the announcements. Thus, to observe the effect of addition and deletion, a standard price and volume event study methodology where abnormal returns and abnormal volumes are the difference between the actual returns and volume, and the returns and volume estimated using linear regression.

The results of this study lead to the conclusion that there is a significant effect of addition to and deletion from the NASDAQ 100 to the added or deleted stocks’ price and volume since significant abnormal returns and abnormal volume were observed in both scenarios. Also, the results provide sufficient evidence to conclude that the NASDAQ 100 index has semi-strong market efficiency. As of 2003, index funds hold more than 10% of the United States’ securities market (Quinn, J. and Wang, F., 2003, 4).

The NASDAQ has several indexes, and the subject of this paper is the NASDAQ 100 index which was launched in 1985 and has grown in popularity in the succeeding thirty-one years since its formation. The composition of the NASDAQ 100 includes securities from the 100 largest global companies listed on the NASDAQ. With the exception of financial and investment companies, all other companies from whichever industry are eligible for inclusion.