Impact of Strait Times Index inclusion on investor's attention

Abstract

In October 2007, FTSE and the Straits Times announced the plan to publish the revamped ST Index and eighteen other concept-wise and industry-wise indices like ST China index, ST Technology index, etc. Nearly 200 stocks were added into the FTSE ST index family. Does the inclusion into the index make investors pay more attention to the new constituent stocks? In this paper, we compare the stock return response to earning announcements between the two announcement seasons: Oct 2007 (before) and Feb 2008. We have plotted the graphs of the stock return response and the immediate/delayed response, and conducted regression analysis on immediate/delayed responses. If investor's attention is a determinant of stock prices, we should observe less stock return drift, more immediate response and less delayed response in Feb 2008 earning announcements. Indeed, though not strong, we have found evidence of investor's attention in Feb 2008 earning announcements.