PRICE AND VOLUME EFFECTS ASSOCIATED WITH CHANGES IN THE DOW-JONES AVERAGES

This study compares the price and volume responses associated with changes in the roster of the Dow Jones Industrial and Transportation Averages with previous research investigating changes in the rosters of the Standard and Poor's stock indices. Event period abnormal returns and daily trading volume for firms added to the Averages are consistent with Merton's (1987) attention hypothesis. Firms added to the roster of the Industrial Average experience positive significant abnormal returns and significantly greater trading volume on the event date. Firms added to the Transportation Average, an event which receives much less media attention, experience neither event period abnormal returns nor increased trading volume. Firms dropped from both Averages experience neither event period abnormal returns nor increased trading volume.