Abstract
This study examines the effect of institutional ownership and investors’ recognition on stock performance around index rebalancing in the Indian market. Studying two significant indices-Nifty 50 and Next Nifty 50 of the National Stock Exchange (NSE) of India from 2002 to 2016 around index rebalancing, we observe the increase (decrease) in institutional ownership for index addition (deletion) category stocks where they exhibit positive (negative) stock returns on an average. Also, we observe that the deletion category stocks suffer from investors’ loss of attention around index rebalancing. Further, we find that foreign institutional investors react to index rebalancing events relatively faster compared to mutual funds and banking institutions. Overall our results support index rebalancing as an information event for Indian markets, conveying positive information about addition stocks whereas negative stock price response for deletion stocks.
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