Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289061 
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Asset Management [ISSN:] 1479-179X [Volume:] 21 [Issue:] 2 [Publisher:] Palgrave Macmillan UK [Place:] London [Year:] 2020 [Pages:] 135-153
Publisher: 
Palgrave Macmillan UK, London
Abstract: 
Combining market data with a publicly available monthly snapshot of Deutsche Börse’s index ranking list, I create a model that predicts index changes in the DAX, MDAX, SDAX, and TecDAX from 2010 to 2019 before they are officially announced. Even though I empirically show that index changes are predictable, they still earn sizeable post-announcement 1-day abnormal returns up to 1.42% and − 1.54% for promotions and demotions, respectively. While abnormal returns are larger in smaller stocks, I find no evidence that they are related to funding constraints or additional risk for trading on wrong predictions. A trading strategy that trades according to my model yields an annualized Sharpe ratio of 0.83 while being invested for just 4 days a year.
Subjects: 
Index rebalancing
Passive investment
Index effect
Index investing
Trading strategy
JEL: 
G12
G14
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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