Contents

Price and Volume Effects of Changes in MSCI indices – Nature and Causes

Rajesh Chakrabarti / Wei Huang / Narayanan Jayaraman / Lee, Jinsoo

Abstract

Using changes in the MSCI Standard Country Indices for 29 countries between 1998 and 2001, we document that stock returns and volumes exhibit "index effects" in international markets similar to those detected by the studies of US stocks. The stocks added to the indices experience a sharp rise in prices after the announcement and a further rise during the period preceding the actual change, though part of the gain is lost after the actual change date. The stocks that are deleted from the indices, on the other hand, witness a steady and marked decline in their prices. Trading volumes increase significantly and remain at high levels after the change date for the added stocks. There are also considerable cross-country variations in these effects. Tests using data on various measures reflecting the different hypotheses fail to turn up any evidence in support of information effects. Our evidence appears to be more supportive of the downward sloping demand curve hypothesis. There is some evidence of price-pressure and mild evidence of liquidity effect, particularly in Japan and UK.

Issue Date
2005-05
Publisher
Elsevier BV
Keywords(Author)
Index Effects; Downward Sloping Demand Curve; MSCI; Liquidity
DOI
10.1016/j.jbankfin.2004.04.002
Journal Title
Journal of Banking and Finance
Start Page
1237
End Page
1264
ISSN
0378-4266
Language
English
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