Investigating the Market Reaction to Inclusion or Exclusion of Top 50 Index List in Tehran Stock Exchange

The purpose of this research is to investigate the impacts of changes (inclusions and exclusions) of top 50 index list on price and trading volume in Tehran Stock Exchange. Most of investors trace market movements by using indices. Therefore, market indices should show transparent picture of capital market trend, in a way that facilitates past and present trends and decision making for future. By using the event study methodology and analyzing data of 165 firm-year within period of first quarter of year 1382 to first quarter of year 1391,results indicate that market do not show significant price reaction to changes in top 50 index list. But results of analyzing abnormal stock trading volume and bid-ask spread difference show stockholders liquidity reaction to inclusions and exclusions. Robustness checks has performed for comparison between systematic risk and idiosyncratic risk, before and after announcement day. Results show that systematic risk has not changed in both sections of inclusions and exclusions before and after announcement. In other words, announcement of inclusions and exclusions do not have effect on systematic risk. About idiosyncratic risk, there is no significant difference between before and after announcement in inclusion situation, but in exclusion situation, idiosyncratic risk before announcement is more than systematic risk after announcement. Also exclusion news has decreased idiosyncratic risk.