What's in the News? Information Content of S&P 500 Additions.

I investigate the information content of S&P 500 index changes by examining the price and volume reaction of the industry and size matched firms. Using a sample of S&P 500 additions between 1976-2001, I find a significantly positive price reaction, but no volume reaction, for the matching firms. In addition, the matching-firm price reaction is negatively related to the added firm's weight in its industry. These findings suggest that the index addition conveys favorable information about the added firm and its industry. [ABSTRACT FROM AUTHOR]