Evidence on Stock Price Effects Associated with Changes in the S&P 600 SmallCap Index

Two widely recognized indices of the performance of small capitalization stock are the Russell 2000 Index and the S&P 600 SmallCap Index. While there have been many studies on the effect of the addition of a stock to an index, two recent and important studies are Chen, Noronha, and Singal (2004) and Biktimirov, Cowan, and Jordan (2004). Chen et al. (2004) find evidence in support of the investor awareness hypothesis for the S& P 500 Index, while the Biktimirov et al. (2004) study supports the price pressure hypothesis for changes in the Russell 2000 Index. We contribute to the literature by explaining this difference as relating to the manner in which the Standard & Poor's and Russell indices are constructed. In this paper, we examine the returns effects associated with changes in the S&P 600 SmallCap Index and find evidence supporting the investor awareness hypothesis.