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Stock Indexes: Does Membership Matter?
Executives often base strategic decisions on whether or not they could get a company's stock included in a major equity index. While share prices do increase around the announcement and effective dates of a stock's inclusion, that effect quickly disappears.
The take-away: The higher prices resulting from a stock's inclusion in an index, as well as the losses resulting from a stock's ejection, generally vanish after a few weeks or months. Senior managers should neither refrain from nor pursue major transactions solely because they might affect a stock's standing with a major index.
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