TY  - JOUR
AU  - Morck,Randall
AU  - Yang,Fan
TI  - The Mysterious Growing Value of S&P 500 Membership
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8654
PY  - 2001
Y2  - December 2001
UR  - http://www.nber.org/papers/w8654
L1  - http://www.nber.org/papers/w8654.pdf
N1  - Author contact info:
Randall Morck
Faculty of Business
University of Alberta
Edmonton, AB  T6G 2R6
CANADA
Tel: 780/492-5683
Fax: 780/492-3325
E-Mail: randall.morck@ualberta.ca

Fan Yang
Edwards School of Business
University of Saskatchewan
Saskatoon SK 
Canada S7N 5A7 
Tel: (306) 966-7938
E-Mail: yang@edwards.usask.ca
AB  - The efficient markets hypothesis implies that passive indexing should generate as high a return as active fund management. Indexing has been a very successful strategy. We document a large value premium in the average q ratios of firms in the S&P 500 index relative to the q ratios of other similar firms that appears in the mid 1980s and grows in step with the growth of indexing. Passive investment strategies that require the purchase of the particular 500 stocks in this index increase demand for those stocks and so push up their prices. In short, indexing induces downward sloping demand curves for stocks in the index. For reasons that are not fully clear, arbitrageurs apparently do not correct this overvaluation.
ER  -