Empirical Study On SHSZ300Index Effects Based On The Methodology Of Event Study

In recent years, with the development of China’s stock market, especially, mutual fund, socialsecurity fund, insurance fund and QFII, institutional investors are playing a more important role andindex investing is also becoming more and more popular. Since2010, China has launched SHSZ300index future and many more index funds; therefore, the SHSZ300has become ever more important inthe stock market. Investors are wondering if SHSZ300has index effect and whether they can utilizethe SHSZ300index effect to make profit. However, domestic study of index effect is still in the earlystage, and no many researches have been done on SHSZ300.This paper makes an empirical study on the index effects of China’s SHSZ300based on13constituent stocks changes from June,2005to June,2011,562stocks in total, with a time window of10trading days before and after the announcement day as well as5trading days before and after thechange day. Research results show that SHSZ300has significant index effect, and the index effectsare different during the two time windows; During the announcement day time window, price ofincoming stocks increases while the price of outgoing stocks first drops then rises; During the changeday time window, the price of outgoing stocks first drops then rises as the change comes; SHSZ300index effects shows symmetry effect and turnaround effect which are in conformity with the The PricePressure Hypothesis.In accordance with the study result, this paper uses the Price Pressure Hypothesis to explain SHSZindex effect and provides investment strategy based on the SHSZ index effect. Finally, the papermakes a number of recommendations based on the findings to different market participators topromote China’s securities market healthy and stable development.