Who pays the premium for stock inclusion on a major index?

On the Tel-Aviv Stock Exchange, there are well defined criteria as to which companies are included on the key TA25 index. This study monitored all additions and removals of companies from the TA25 index between 2001 and 2007. The findings show that the turnover of stocks of companies added to the index increased by 27%. However traders predicted expected removals and additions and estimated the inelastic demand curves of the investment funds linked to the index. As a result, the major changes in the prices of stocks occurred two months before the official announcement of companies on the index. Hence, holders of investment funds linked to the index pay most of the index premium.