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This appears to be the first investigation of the impact of bond index additions and deletions on the returns of bonds and stocks of the underlying issuers using various unconditional and conditional return-generating models. The effect of additions and deletions is symmetric for each asset class, and robust across various return-generating models. While bond returns are positively (negatively) affected by bond index inclusions (exclusions), stock returns are unaffected by these bond index revisions. These results suggest that, although bond index additions and deletions materially affect bond values when measured at market, equity investors do not perceive any material change in financial risk from such changes.
