Index composition changes around the world: A comprehensive literature review

Abstract

This paper aims to provide a comprehensive literature review on composition changes for benchmark indexes not only for popular indexes such as the S&P 500 but for also global counterparts both in the developed world and the emerging market realm. By shedding light on the phenomena at play for index changes we seek to provide an overview starting from the roots of the literature to modern day works that reflect the current state of the topic and also where it is going. The theme of our study is orientated around the discussion range between information effects associated with index inclusions and exclusions, implications for liquidity, price pressure and demand shocks resulting with demand curve shifts and slopes for the demand curves of stocks and other subtopics such as thematic index composition changes. We dive into whether index composition changes en masse are rooted in information and/or demand driven explanations around the world.