S&P 500 selection committee accused of lacking objectivity

Posted on Oct. 12, 2021, 5:46 p.m.Updated Oct 12, 2021, 5:57 PM

For a listed US company, being part of the S&P 500, the most well-known index in the world, is priceless. The share price rises and liquidity rises, if only because passively managed funds replicate the index and automatically buy securities. The leaders acquire a certain prestige, as well as notoriety. Would these advantages be such that companies would be willing to pay to integrate this American stock market index?

This is what suggests an explosive study published in early October by three researchers from the NBER (National Bureau of Economic Research) and entitled “Is membership of the stock market index for sale?” “. By following as closely as possible the selection criteria published by S&P to enter the index, Kun Li and Xin (Kelly) Liu, of the University of Australia, and Shang-Jin Wei, of the University of Columbia, manage to explain only 62% of the choices. Conversely, 38% are not justified, according to them.

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