The Power of Indices: A Study of Joiners and Leavers to the Most Prominent Indices in the Nordics and Baltics

Sammanfattning

This paper investigates the index effect in the Nordic and Baltic stock markets through an event study on the five major indices: OBX, OMXB10, OMXC20, OMXH25 and OMXS30, covering the period 1996 to 2024. We find positive (negative) abnormal returns for inclusions to (exclusions from) the indices , in line with prior findings. The index effect refers to the abnormal returns and trading volumes observed when stocks are added to or removed from an index. This phenomenon has gained renewed attention with the global shift from actively managed to passively managed funds, which has heightened the role of indices in investment strategies. Utilizing an event study methodology, this research provides evidence consistent with the index effect. The study contributes to the literature by offering a comprehensive analysis of less-explored Nordic and Baltic markets.