Market reaction to index reconstitutions: Evidence from NSE NIFTY additions and deletions

Abstract

This study investigates the market reaction to additions and deletions of stocks in the NSE NIFTY Index during 2010-2024 using the event study methodology. A total of 92 events were identified, of which 81 were analysed due to data availability. The analysis employs a 252-day pre-event estimation window and a 41-day event window, with abnormal returns (AR) and cumulative abnormal returns (CAAR) calculated for multiple sub-windows to examine investor responses around announcement and effective dates. Results indicate that additions generally elicit modest positive reactions on announcement days that diminish or reverse on effective dates, while deletions produce stronger negative reactions initially, followed by partial recovery. Temporal analysis across three sub-periods-2010-2014, 2015-2019, and 2020-2024-reveals variations in market responses under different market conditions, highlighting asymmetric behavior between additions and deletions. The findings provide insights into price adjustments, investor sentiment, and market efficiency surrounding index revisions in the Indian stock market.