Leaving the S&P 400 index for the S&P 500 has been bad news for a firm’s stock value in recent years, according to a new study from the University of Iowa’s Tippie College of Business, while leaving the 500 for the 400 has been good.

The study found that on average, stocks that left the S&P 500 index for the 400 from 2016 to 2020 dropped in value, earning an excess return of ‑2.48% following the announcement of the move. Stocks that moved to the S&P 400 from the 500, meanwhile, earned an excess return of 1.37 percent.

Anand Vijh, professor of finance in the Tippie College of Business and study co-author, said this is a change from previous years, when studies showed that moving to the S&P 500 index was good news and moving out of that index was bad news for stocks.

What changed? More S&P 400 stocks are now being purchased by institutional investors. The study shows that the total institutional ownership of S&P 400 stocks (including both active and passive mutual fund ownership) has been higher and growing relative to S&P 500 stocks in recent years.

“Higher demand from institutional owners increases stock price,” he said, noting that previous studies have documented other benefits associated with higher institutional ownership, such as lower cost of capital, improved liquidity, and better governance.

Vijh’s study, “Negative returns on addition to the S&P 500 index and positive returns on deletion? New evidence on the attractiveness of S&P 500 versus S&P 400 indexes,” was co-authored with Jiawei (Brooke) Wang of the Tippie College of Business and published in the journal Financial Management.”

MEDIA CONTACT: Tom Snee (319) 384-0010 (o); 319-541-8434 (c); tom-snee@uiowa.edu