Foreign Ownership and Local Market Reaction to Changes of the Constituents in the International Stock Index: Evidence from Additions to and Deletions from Msci Taiwan Index
36 Pages Posted: 28 Aug 2009
Date Written: August 28, 2009
This paper examines local market reactions to the constituent changes in MSCI Taiwan Index. We find that market adjusted returns are significantly positive for additions and significantly negative for deletions on the announcement day, and on the effective day. The price patters following the effective day are asymmetric for additions and deletions. We also find that foreign ownership increases for additions and decreases for deletions. The amount of increased foreign ownership for additions is higher than the amount of decreased foreign ownership for deletions. Our results support the investor awareness hypothesis.
Keywords: MSCI Taiwan Index, index changes, constituents, investor awareness
JEL Classification: G12, G14
Suggested Citation: Suggested Citation