We examine changes in betas for stocks included in the S&P500 index. In contrast to the prior literature, we find no change in the market beta following inclusions, after controlling for the Fama-French SMB and HML factors. Further, we find a significant reduction in the loadings of stock returns on the SMB and HML factors after index additions. The cross-sectional evidence indicates that reductions in factor loadings are significantly determined by increases in earnings per share and market capitalization around index additions. These results hold both at the daily and weekly data frequency. We conclude that changes in comovements around S&P 500 additions are consistent with improved firm fundamentals at the time.
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