Excess Comovement by Index Events: An Extension to the Swedish Stock Market

Sammanfattning: Using momentum and fundamental changes as control variables for stocks subject to index events have shown to disprove previous evidence of excess comovement (Chen et al, 2016, Kasch and Sarkar, 2014, Von Drathen, 2014). This thesis examines if the control variables disprove excess comovement, to the same extent, when examining an index on another stock market outside the U.S. By replicating methods developed by Chen et al (2016), we show that for index additions to and removals from the Swedish index OMX Stockholm Benchmark, there is no support for the excess comovement hypothesis. With two univariate regressions and a matched sample approach controlling for momentum and size, previously found evidence of excess comovement can instead be explained by changes of the event stocks' fundamental betas. Further, we highlight differences in results that we argue stems from differences in index qualification processes and market microstructures. Despite these differences, we find no support of excess comovement caused by index events on the Swedish stock market.