Changing the methodology of equity indices-The case of the Tel-Aviv Stock Exchange

This study investigates the impact of a change in the methodology of constructing a stock index on the stability of a stock exchange. In July 2010, the Tel Aviv Stock Exchange changed the criteria for the construction of five of its indices. Using data from these five stock indices for the years 2009-2011, we find that the reform increased the quality of all five indices. The liquidity of the indices increased, the volatility of their returns decreased, and their mean return remained unchanged.