The Exclusionary Effect on The Stock Performance

Abstract

This study examines the direct effect on stock performance following exclusion announcements made by the Norwegian Government Pension Fund Global within a short- and long-term horizon. Through an event study, we provide evidence that market participants perceive the exclusion from the pension fund negatively, as the cumulative abnormal returns (CAR) are significantly less than zero. To further elaborate on our results, we include mean-differences tests between three subsample splits: developed- and emerging markets, product- and conduct-based exclusion criteria, and small and large firms’ market capitalisation. Our findings show that all mean-differences tests give significant results, suggesting that extraneous variables have individual effects on CAAR. Additionally, we have separately estimated the change in systematic- and unsystematic risk to examine the exclusion effects in the long term. Our findings show no significant increase or decrease in risk after an exclusion. Since we use change in risk as an estimator for change in rate of return, we conclude that exclusion has no detrimental impact on stock performance in the long run.