| dc.description.abstract | This thesis aims to provide a better understanding of the index effect on the Oslo Stock Exchange Benchmark Index (OSEBX) and generate potential trading strategies for Borea Asset Management. The exploitation of the index effect anomaly has been discussed since the earliest studies of index revisions on S&P 500 dating back to the 1980s. This paper examines the index effect indirectly by observing returns on various CAR interval within the event window. By using the standard event-study methodology and the market model to calculate abnormal returns, we find that Borea can exploit the index effect by going long-short on inclusions and exclusions, respectively, within the grace period. More specifically, Borea should apply this strategy on the announcement day and cancel out the positions the day before the effective date. Moreover, we find a strong reversal effect already on the effective date. The mean reversal reinforces the belief that the index funds must rebalance their holdings with index revisions, and thus creates a price pressure and consequently a change in demand. Thus, we find support for the Price Pressure Hypothesis to explain the index anomaly. Ultimately, Borea can combine a trading strategy that exploits both the index effect in the grace period and the subsequent mean reversal after the effective date. In sum, we have revealed several exciting trading opportunities before and after the effective date | nb_NO |
