The effect on prices of the stocks entering the Ibovespa

Abstract

The objective of this article is to verify if the stocks entering the Ibovespa (Bovespa Index) showed significant abnormal returns around the announcement date and the implementation date. The inclusions between September 1994 and September 2009, in a total of 55, were analyzed in this study. For each stock entering the Ibovespa the cumulative abnormal return was calculated within an event window, based on the market model. Afterwards, the cumulative abnormal return mean was tested to verify whether it was significantly different than zero. Several event windows were tested considering three events: two prior announcement dates and the observed implementation date. The results around the implementation date indicate the existence of significant positive abnormal return before the event, significant negative abnormal return after the event and absence of significant abnormal results around the event, suggesting a non permanent effect, consistent with the “price pressure hypothesis”. The mean test was conducted using the t test and normality was tested with the Jarque-Bera test. This article brings more evidence with respect to the price effect associated with the changes in the composition of market indexes by analysing the additions to the Ibovespa.