Forecasting index changes in the German DAX family
- 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.
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| Author: | Friedrich-Carl FranzGND |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-628304 |
| DOI: | https://doi.org/10.1057/s41260-020-00153-6 |
| ISSN: | 1479-179X |
| Parent Title (English): | Journal of asset management |
| Publisher: | Henry Stewart Publ. ; Proquest |
| Place of publication: | London [u.a.] ; [S.l.] |
| Document Type: | Article |
| Language: | English |
| Date of Publication (online): | 2020/02/18 |
| Date of first Publication: | 2020/02/18 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2023/04/13 |
| Tag: | Index effect; Index investing; Index rebalancing; Passive investment; Trading strategy |
| Volume: | 21 |
| Issue: | 2 |
| Page Number: | 19 |
| First Page: | 135 |
| Last Page: | 153 |
| Note: | Open access funding provided by Projekt DEAL. |
| Note: | Appendix: Table 8 Changes by Date (I) https://link.springer.com/article/10.1057/s41260-020-00153-6/tables/8 Table 9 Changes by Date (II) https://link.springer.com/article/10.1057/s41260-020-00153-6/tables/9 Table 10 Changes by Date (III) https://link.springer.com/article/10.1057/s41260-020-00153-6/tables/10 Table 11 Changes by Date (IV) https://link.springer.com/article/10.1057/s41260-020-00153-6/tables/11 Table 12 Changes by Date (V) https://link.springer.com/article/10.1057/s41260-020-00153-6/tables/12 Table 13 Changes by Date (IV) https://link.springer.com/article/10.1057/s41260-020-00153-6/tables/13 |
| HeBIS-PPN: | 508905877 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| JEL-Classification: | G Financial Economics / G1 General Financial Markets / G12 Asset Pricing; Trading volume; Bond Interest Rates |
| G Financial Economics / G1 General Financial Markets / G14 Information and Market Efficiency; Event Studies | |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Creative Commons - Namensnennung 4.0 |
