Abstract
Executive Summary. This study investigates the announcement effects of additions and deletions of individual stocks in the S&P REIT Index. The findings indicate a small but significant stock price reaction to additions. However, an addition or deletion has no impact on trading volume and institutional ownership. Overall, there is but limited opportunity for institutional investors to earn abnormal returns around changes in the REIT Index because of trading costs and other incidental expenses. However, individual investors may be able to exploit the arbitrage opportunity if their trading costs are lower. Finally, significant long-term valuation gains following deletions are found—apparently, deletions serve to discipline managers to improve performance.
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