S&P 500 Index Additions Underperform?

Do stocks added to major indexes, such as the S&P 500 Index, exhibit exceptionally strong subsequent returns? In their July 2020 paper entitled “Does Joining the S&P 500 Index Hurt Firms?”, Benjamin Bennett, René Stulz and Zexi Wang investigate effects on firms/stocks of joining the S&P 500 Index and whether these effects change over time. They estimate abnormal stock performance using both market-adjusted returns and alphas from 3-factor (market, size, book-to-market), 4-factor (adding momentum) or 5-factor (adding profitability and investment instead of momentum) models of stock returns. Using monthly and daily fundamentals and price data for 659  firms/stocks added to the S&P 500 Index during 1997 through 2017, they find that:

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