Negative returns on addition to the S&P 500 index and positive returns on deletion? New evidence on the attractiveness of S&P 500 versus S&P 400 indexes

In recent years, the majority of additions to and deletions from the S&P 500 index have been stocks that were previously or subsequently included in the S&P 400 index. The announcement returns of these changes have been the opposite of what has been documented for all S&P 500 additions and deletions in an extensive literature. During 2016–2020, such “upward additions” to the S&P 500 index resulted in an average announcement excess return of –2.48% over a 3-day period, while “downward deletions” to the S&P 400 index resulted in an excess return of +1.37%. We explain these new results by the increasing total institutional ownership of S&P 400 stocks. Our results thus show the increasing benefits of being included in the mid-cap S&P 400 index relative to being included in the large-cap S&P 500 index.