Reexamination of Stock Price Index

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We studied the characteristics and problems of stock price index, particularly, the Dow Jones Average and market capitalization weighted index. We examined stock price nd volume effects associated with a change in the composition of the Nikkei 225 index in Japan in April 2000. Our results include the following : first, we show that newly added firms experience significant positive excess retums after the announcement of the change ; in contrast, deleted and remaining firms' retums are negatively affected ; second, volume tests show significant increase in trading activity after the announcement for both added and deleted firms ; third, cross-sectional analysis provides evidence that higher arbitrage risk and demand shocks increase the absolute value of excess retums. We did field research study using the responses from 3632 mail survey to examine managers thinking about stock ownership in Japan, First, we show that firms that undergo stock splits experience positive abnormal announcement returns. Second, average daily yen trading volume and average daily volume turnover decrease after ex-date of the stock split, suggesting that stock splits negatively affect liquidity. Third, we show that in Japan, stock splits alter the ownership structure of firms.