%0 Journal Article %A Daniel Cooper %A Geoffrey Woglom %T The S&P 500 Effect %B Not So Good in the Long Run %D 2003 %R 10.3905/joi.2003.319569 %J The Journal of Investing %P 62-73 %V 12 %N 4 %X This is an analysis of the effect on a company's stock price of adding it to the S&P 500 index. A simple theoretical model is developed to show how trading effects and changes to fundamentals should affect the price of S&P 500 additions upon announcement and in the long run. The model predicts a company added to the S&P 500 should experience an initial price increase and then a reversal of this price increase, owing to the predicted increased stock price volatility of companies post-addition. All these effects should strengthen over time with the increasing importance of S&P 500 indexed mutual funds. Tests of the model using a sample of 303 S&P 500 index additions between 1978 and 1998 produce generally consistent with predictions, particularly in the most recent period, when it appears that a post-addition increase in stock price volatility reverses almost all the initial price increase. %U https://joi.pm-research.com/content/iijinvest/12/4/62.full.pdf