4.3. Index effects for small versus large firms
It is possible that the event of an addition or deletion will have a
bigger impact on smaller capitalisation stocks than on otherwise
identical stocks that are larger. The argument would go that large
cap stocks are already liquid, heavily traded, and widely tracked by
analysts. Larger firms may already be included in institutional investors'
portfolios and any information content of index membership
may not play a significant role. Smaller firms, on the other hand,
derive more relative advantage when being in the index, and one