Abstract

http://ssrn.com/abstract=6112
 
 

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Information Costs and Liquidity Effects from Changes in the Dow Jones Industrial Average List


Messod Daniel Beneish


Indiana University - Kelley School of Business - Department of Accounting

John Gardner


King's College London


JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, Vol 30, No 1, March 1995

Abstract:     
We examine the stock market effect of changes in the composition of the Dow Jones Industrial Average (DJIA). Unlike S&P 500 listing studies, we find that the price and the trading volume of newly listed DJIA firms are unaffected. We attribute this result to a lack of index fund rebalancing, since index trading is limited for most of our sample period and index funds mimic the S&P 500, not the DJIA. Firms removed from the index, however, experience significant price declines. We consider information signaling, price pressure, imperfect substitutes, and information cost/liquidity explanations for these asymmetric findings. The evidence is consistent with the information cost/liquidity explanation, which holds that investors demand a premium for higher trading costs and for holding securities that have relatively less available information.

JEL Classification: G14

Accepted Paper Series


Not Available For Download

Date posted: October 27, 1999  

Suggested Citation

Beneish, Messod Daniel and Gardner, John, Information Costs and Liquidity Effects from Changes in the Dow Jones Industrial Average List. JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, Vol 30, No 1, March 1995. Available at SSRN: http://ssrn.com/abstract=6112

Contact Information

Messod Daniel Beneish (Contact Author)
Indiana University - Kelley School of Business - Department of Accounting ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2628 (Phone)
812-855-4985 (Fax)

John Gardner
King's College London ( email )
Strand
London, UT England WC2R 2LS
United Kingdom
011-44 171 873 (Phone)
011-44 171 873 (Fax)
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